What’s Next as Hong Kong SFC Introduces New Licensing Regime to Strengthen Crypto Regulation?

Twenty-two major companies, including Crypto.com and OKX, have submitted applications to obtain licenses to operate as crypto exchanges in Hong Kong, according to the Securities and Futures Commission (SFC). These companies are seeking to become virtual asset exchanges in the city, following the amendment of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) by Hong Kong’s Legislative Council in December 2022. This amendment introduced a licensing system for Virtual Asset Service Providers (VASPs).

However, as of February 29, Hong Kong is no longer accepting license applications from cryptocurrency exchanges, as that was the final day for submission. The SFC has made it clear that non-compliant crypto exchanges must cease operations by May 31, 2024, and investors are advised to transition to licensed platforms for security reasons.

Initially, licensed crypto exchanges will only be allowed to facilitate trades in Bitcoin and Ether. The Securities and Exchange Commission (SEC) is currently reviewing other cryptocurrencies and stablecoins for potential approval.

The first two companies to receive crypto licenses from the SFC are OSL Exchange and HashKey Exchange, marking significant milestones in Hong Kong’s crypto landscape. However, the SFC has emphasized that inclusion in the list of 22 applicants does not guarantee approval. Strict compliance with SFC regulations is mandatory for a chance at obtaining a license. On June 1, 2024, the SFC will release a comprehensive list of licensed crypto exchanges to provide clarity on the approved entities.

In a surprising turn of events, cryptocurrency trading platform HTX, formerly known as Huobi Global, has withdrawn its license to operate in Hong Kong. The withdrawal is reported to be for HBGL Hong Kong Limited, which falls under Hong Kong’s HTX. HTX withdrew its application just three days after submitting it on February 23.

As the SFC continues the process of approving licenses, the applicants eagerly await the outcome of their applications. It remains to be seen which companies will ultimately be successful.