Hong Kong Prepares to Shut Down All Unlicensed Cryptocurrency Exchanges

Cryptocurrency exchanges are leaving Hong Kong. Will this undermine the region’s aspirations to become an international crypto hub?

Hong Kong authorities She said that all cryptocurrency exchanges that have not applied for an operating license with the Securities and Futures Commission (SFC) From Hong Kong are required by law to immediately cease their activity in the region.

Therefore, at the beginning of the year, the SFC explicitly asked cryptocurrency exchanges to submit a license application by February 29 or stop operating in the region within three months.

At least 22 cryptocurrency exchanges have applied for the necessary licenses to operate in Hong Kong at the time specified by the SFC. However, some of them withdrew their applications shortly before the deadline.

Thus, journalist Colin Wu writes that last month, six global platforms, including OKX, Gate.HK and Huobi HK have left the Hong Kong market. Furthermore, many of them needed to indicate the reasons for their unexpected decision. Only Gate.HK cited the need for an “overhaul” of its trading platform before it can comply with Hong Kong’s regulatory requirements.

“Many industry insiders fear that the new licensing system will turn into a repeat of the ‘food truck incident’ or even become a case of government promotion of virtual banks, with much ado about nothing.”

Colin Wu, blockchain journalist

Compulsory license

Effective June 1, virtual asset trading platforms (VATPs) operating in Hong Kong must be licensed under the Anti-Money Laundering and Anti-Terrorism Financing Order (AMLO) to be legal.

This regulatory change requires VATP entities to be authorized by the Financial Services Council or qualify as “deemed authorized” applicants. Acting without abiding by the rules is a criminal offense and strict action has been promised against violations.

“This list indicates the names of Virtual Asset Trading Platform Operator Applicants (VATP Applicants) whose license applications are yet to be approved by the SFC [Note 1] and includes those who are considered IVAP applicants licensed on or after June 1, 2024.”

SFC Statement

Failure to comply with SFC standards will result in license denial and platforms may be forced to cease operations in Hong Kong. The SFC emphasizes the temporary nature of the conditions, which are intended to encourage market development and ensure investor safety.

Who can get the license?

Second Bloombergin early June, the SFC announced that some cryptocurrency exchanges were one step closer to obtaining licenses.

The total number of applicants includes companies such as HKbitEX, VDX, HKVAX, PantherTrade, Accumulus, DFX Labs, Bixin.com, xWhale, bitV, YAX, Bullish, Crypto.com, WhaleFin, Matrixport HK, HKX and bitcoinworld.

At the same time, large platforms such as OKX have withdrawn their authorization requests. Binancethe largest stock exchange in the world, did not apply, as was the case CoinBase AND Kraken.

Ban on serving customers from China

Hong Kong has been designated as a special administrative region of China under the “one country, two systems” principle since July 1997. At the same time, the attitude of the two regions towards cryptocurrencies is fundamentally different.

China has strictly banned cryptocurrency trading since September 2021, but interest in Bitcoin (Bitcoin) is growing. Despite the ban, China’s underground cryptocurrency market still has huge trading volumes. Hong Kong is open to digital assets and is facing an economic slowdown that is pushing investors into digital assets.

Colin Wu revealed some details on how to obtain official permission. Several applicants told him that the SFC required license applicants to ensure that the exchanges did not serve users from mainland China in any region of the world.

The source claims that this condition could be the reason why some cryptocurrency exchanges left Hong Kong.

Hong Kong focuses on web3

Unlike mainland China, Hong Kong has actively developed blockchain in recent years.

In October 2022, the government announced the legalization of retail cryptocurrency transactions. In early December 2022, the Legislative Council of Hong Kong adopted legislation that introduced the concept of virtual assets and established compulsory licensing of crypto service providers starting from June 1, 2023.

In April, six Bitcoin and Ethereum (ET) stain ETFs were launched for trading in Hong Kong. Four companies have received approval to launch the new tool: China Asset Management, Harvest Global Investments, Bosera and HashKey.

In addition to Hong Kong citizens, international investors who meet all local standards will also have access to the new ETFs. In particular, they must go through Know Your Customer (KYC) procedure. This inclusive approach could expand the client base and improve the liquidity and stability of Hong Kong’s ETF market.

Will the new rules ruin Hong Kong’s efforts?

Hong Kong’s approach emphasizes investor protection and anti-money laundering measures, which could discourage those seeking stricter compliance conditions. However, despite the ban on cryptocurrency trading, the city offers a potential window into mainland China’s wealth.

Regulators are conducting several pilot projects to evaluate the potential benefits of cryptocurrencies and explore their applications. Furthermore, Hong Kong has gradually confirmed its pro-crypto stance, becoming the most crypto-ready country.

One way or another, by issuing compulsory licenses for cryptocurrency exchanges, Hong Kong will further strengthen its position as the world’s leading cryptocurrency hub.

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