Hong Kong Legislator Expresses Concerns About Crypto Licensing System as Major Exchanges Withdraw Applications
Hong Kong Legislative Council member Wu Shuo has raised criticism of Hong Kong’s cryptocurrency licensing system, stating that it is affecting market confidence. In a recent article, Wu highlighted concerns regarding the licensing requirements imposed by the Hong Kong Securities and Futures Commission (SFC), which have led several major exchanges to withdraw their license applications.
The licensing system, which is set to be implemented on June 1, 2023, mandates that virtual asset trading platforms operating in Hong Kong obtain a license from regulatory authorities by the end of the transition period, which concludes on June 1, 2024. Failure to obtain the license would result in the termination of their business operations.
Wu drew attention to the series of withdrawals that have occurred in recent months. On March 28, 2024, HKVAEX, suspected to be affiliated with Binance, withdrew its license application. Subsequently, on May 14, IBTCEX, QuanXLab, and Huobi HK followed suit, followed by Gate.HK on May 22, OKX HK on May 24, and Bybit (Spark Fintech Limited) on May 31. These withdrawals have left only 17 virtual asset trading platforms remaining on the application list, with a total of 11 companies having withdrawn or returned their license applications.
Wu attributed the withdrawals to the requirement imposed by the Hong Kong SFC, which obligates applicants for virtual asset trading platform licenses to commit to not having mainland Chinese users in any region. This requirement poses a challenge for traditional offshore exchanges, making it difficult for them to comply. OKX attempted to form an industry alliance to oppose the requirement but was ultimately unsuccessful.
Industry insiders have suggested that the entities that have withdrawn their applications may potentially update their legal frameworks or entities and reapply in the future. However, they may not be able to reapply using a brand similar to that of an offshore exchange. Currently, 11 platforms, including HKbitEX, PantherTrade, Accumulus, DFX Labs, Bixincom, xWhale, YAX, Bullish, Cryptocom, WhaleFin, and Matrixport HK, remain as licensed applicants. Only OSL and HashKey have obtained formal licenses thus far.
The Hong Kong SFC has announced that it will conduct on-site inspections of local virtual asset trading platforms (VATPs) that have not yet completed their regulatory applications after the licensing deadline of June 1. This move serves as a reminder to crypto companies of their obligation to obtain licensing before the deadline. After June 1, all local crypto trading platforms in Hong Kong must be licensed or “deemed-to-be-licensed” by the SFC.
In other news, Hong Kong has introduced its first batch of ETFs focused on cryptocurrencies, posing potential competition for popular Bitcoin products in the United States. Bloomberg Intelligence’s Rebecca Sin estimates that Bitcoin and Ether funds in Hong Kong could accumulate around $1 billion over the next two years. Similarly, the CEO of CF Benchmarks, a subsidiary of cryptocurrency exchange Kraken, predicts that Hong Kong crypto ETFs will overcome their lackluster start and accumulate over $1 billion in assets by the end of 2024.