Are Crypto Exchanges Leaving Hong Kong Due to SFC Regulations?

Hong Kong’s aspirations in the crypto industry have hit a snag with the introduction of strict licensing regulations for crypto exchanges. This has led to some major players exiting the market, citing concerns over regulatory scrutiny of user bases from a specific undisclosed “sensitive region.” The Hong Kong Securities and Futures Commission (SFC) has been in negotiations with these exchanges, but details about the “sensitive region” remain undisclosed.

The reasons behind the withdrawals are puzzling to some industry insiders. Yat Siu, chairman of Animoca Brands, highlights the city’s high awareness of crypto, concentrated audience, and significant liquidity as reasons to stay. However, the SFC’s requirement for exchanges to avoid serving mainland Chinese users proved challenging for some. OKX attempted to resist this requirement by forming an industry alliance but was unsuccessful, leading to major exchanges like OKX, Gate.io, and HTX withdrawing their applications. OKX has also announced plans to wind down its Hong Kong operations by the end of August.

Regulatory expectations play a significant role in these withdrawals. Angela Ang, a former official at the Monetary Authority of Singapore, explains that it is common for regulators to require licensees to comply with the laws of another jurisdiction. This, coupled with the inability to meet regulatory expectations, makes withdrawal a preferable option to outright rejection. However, Hong Kong lawmaker Duncan Chiu criticizes the strict regulations, arguing that they have deterred major global exchanges from entering the market, thus weakening market confidence.

The new licensing regime in Hong Kong aims to boost market integrity and investor protection. As the industry adjusts to these rules, the future of crypto exchanges in Hong Kong remains uncertain, with both opportunities and challenges ahead. The question remains whether Hong Kong will be able to attract major crypto exchanges again.