Hong Kong’s crypto ambitions tested by licensing issues: report

Hong Kong’s ambitions to become a cryptocurrency hub are facing hurdles as more than a dozen exchanges struggle to obtain full licenses due to regulatory concerns.

Cryptocurrency exchanges in Hong Kong are facing difficulties in obtaining full licenses as the city moves towards becoming a cryptocurrency hub, Bloomberg reported, citing sources familiar with the matter.

The city’s Securities and Futures Commission reportedly found unsatisfactory practices during on-site inspections of 11 “presumed licensed” exchanges, casting doubt on their ability to meet full licensing requirements. The investigation found that some exchanges over-relied on a small number of managers to manage the custody of customer assets, while others “failed to adequately protect against cybercrime risks,” the report said.

The exchanges examined reportedly include big names such as Crypto.com and Bullish, as well as local trading platforms such as HKbitEX and PantherTrade.

So far, only two platforms — OSL and HashKey — have full licenses in Hong Kong. While the SFC aims to issue additional licenses by the end of 2024, the process has led to the withdrawal of 12 applications, including those from Bybit, Huobi HK, and OKX.

Hong Kong is reviewing regulations for cryptocurrency exchanges

The SFC’s findings come as the regulator intensifies its efforts to ensure strict compliance across crypto platforms, with a particular focus on protecting customer assets and implementing strong know-your-customer protocols.

This intense scrutiny comes after a scandal involving JPEX, an unlicensed crypto platform accused of defrauding more than 2,600 victims of more than $200 million. The SFC previously reported that JPEX and crypto influencers made false or misleading claims on social media, including falsely implying that the exchange had applied for a virtual assets trading platform license in Hong Kong.

However, the regulator later stressed that JPEX had not filed any such application despite its claims to be a “licensed and recognized platform for facilitating trading in digital assets and virtual currencies.”