Hong Kong’s Crypto Hub Faces Licensing Challenges Amid Regulatory Scrutiny

• Hong Kong’s push to become a crypto hub faces challenges, with over a dozen exchanges struggling to secure full licenses.
• Regulatory scrutiny has led to the withdrawal of 12 applications from exchanges, including Bybit and Huobi HK.
• The Securities and Futures Commission identified unsatisfactory practices during inspections, raising doubts about licensing approvals.

Hong Kong’s ambition to become a leading crypto hub is encountering significant hurdles as several cryptocurrency exchanges struggle to secure full licenses. According to reports, more than a dozen exchanges are facing difficulties in obtaining the necessary approvals from the Securities and Futures Commission (SFC) due to concerns raised during regulatory inspections.

Regulatory Scrutiny Intensifies

The SFC’s inspections have uncovered several unsatisfactory practices among 11 deemed-to-be-licensed exchanges. These platforms, which had initially received temporary approvals, are now under intense scrutiny. The inspections revealed that some exchanges were excessively reliant on a small group of executives to manage client asset custody, which raises concerns about their operational security. Additionally, other exchanges were found lacking in measures to guard against cybercrime, further complicating their path to full licensing.

The regulatory hurdles are not just affecting smaller local exchanges; prominent names such as Crypto.com and Bullish are also under the SFC’s microscope. Local trading platforms like HKbitEX and PantherTrade are similarly struggling to meet the stringent licensing requirements. 

Despite the city’s ambitions to lead in the crypto space, only two platforms, OSL and HashKey, have successfully obtained full licenses so far. The SFC aims to issue more licenses by the end of 2024. However, this process has already led to the withdrawal of 12 applications, including those from Bybit, Huobi HK, and OKX.

Impact of the JPEX Scandal

The SFC’s heightened scrutiny comes in the wake of a significant scandal involving the unlicensed platform JPEX. Accused of defrauding over 2,600 victims of more than $200 million, JPEX had falsely claimed to be a licensed entity. The scandal has intensified the SFC’s focus on ensuring strict compliance among crypto platforms, with an emphasis on safeguarding client assets and enforcing robust know-your-client protocols.

The future of Hong Kong as a crypto hub hangs in the balance as the SFC continues to enforce stringent regulatory measures. The outcome of this licensing process will be crucial in determining whether the city can achieve its ambitious goals in the digital asset space.