- A range of crypto exchange platforms could be granted service licenses in Hong Kong by 2025.
- Due to increased regulatory scrutiny, some major exchanges have withdrawn their applications.
Hong Kong's financial watchdog is poised to add more digital asset exchanges to its regulated roster by the end of the year.
This follows a five-month review aimed at tightening oversight of cryptocurrencies in Hong Kong.
The Securities and Futures Commission (SFC) has indicated that licensed exchanges can operate under restrictions until they pass third-party review, after which they can move toward full approval.
“The applicants are open to our feedback and are willing to commit resources to rectify the issues,” Eric Yip, executive director of intermediaries at SFC, said at Hong Kong FinTech Week.
delicate balance
Hong Kong aims to become Asia's top crypto hub, competing with South Korea, Singapore and other regions.
To that end, regulators quickly approved Bitcoin and Ethereum ETFs, months after U.S. authorities cleared the way for mass-market funds in January.
But authorities are also working to curb rampant fraud that has plagued digital asset markets for the past two years.
Officials say a number of phantom exchanges like JPEX have defrauded investors of hundreds of millions of dollars in deposits.
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So far, only three exchanges have met the SFC's stringent requirements: OSL, HashKey, and HKVAX.
Bullish, Crypto.com, and Matrixport are among the 14 platforms in the “Deemed License Required” category.
SFC Director General Julia Leon recently told local media that the SFC aims to award conditional licenses to companies that meet all requirements by the end of the year.
bigger push
This approach is part of a larger effort to transform Hong Kong into a digital asset powerhouse with a regulatory regime that protects investors.
While increased compliance enforcement may sound like a good thing to investors, it has proven to be too onerous for some exchanges.
OKX, Huobi, Gate.HK and Bybit each withdrew their applications to cater to Hong Kong investors earlier this year.
The companies did not give reasons for their exits, but a major regulatory hurdle appears to be Hong Kong's restrictions on serving mainland Chinese customers.
The JPEX scandal has cast a significant shadow over the regulatory push.
In September 2023, the SFC warned the public about false claims about unauthorized activities and regulatory approvals by a Dubai-based exchange called JPEX.
This led to a series of complaints about fraudulent activity, leading to the suspension of exchange accounts and transactions. When the situation was over, customers reported losses totaling approximately $200 million.
Kyle Baird is DL News' weekend editor. Any tips? email address: kbaird@dlnews.com.
