Global Adoption

Hong Kong Gearing Up to Approve More Cryptocy Exchange Licenses by Year-End

The Hong Kong Securities and Futures Commission (SFC) plans to approve more cryptocy exchanges to operate in Hong Kong by the end of the year, according to its CEO Julia Leung. Speaking on Oct. 6 with local outlet HK01, Leung said that 11 of the platforms that have applied for a license have now undergone on-site reviews. She expects further progress in their applications by the end of the year.

Her comments came following the approval of local exchange HKVAX’s application last week. The company, which aims to launch its platform in Q4 this year, is the third exchange in the city to receive regulatory approval. HashKey and OSL also have operating licenses, which were upgraded from licenses they already held under the previous regulatory regime. Bullish, the parent company of CoinDesk, has also applied for a license.

The SFC did not respond to a request for clarification about how many platforms have applied. One page on its website lists 11 applicants for the licensing regime, while another lists 16. The promise of future approvals comes after criticism that Hong Kong’s current regime is too strict, potentially damaging the city’s goal of becoming a crypto and web3 hub.
In August, a report suggested the regulator had found “unsatisfactory practices” at some exchanges. In particular, it stated that “some of the crypto firms are overly reliant on a handful of executives to oversee the custody of client assets, while others aren’t properly guarding against cybercrime risks.”
After failing to secure applications from big names like Coinbase – despite the exchange being personally invited to set up in Hong Kong by Legislative Council member Johnny Ng – other international companies have withdrawn their applications. (One exception is Crypto.com, which remains on the applicant list.)

Among those who withdrew are OKX and Bybit, both of which canceled their applications in May and did not disclose the reasons for doing so. The South China Morning Post reported that one major factor may have been an SFC notice that they must prevent mainland Chinese residents from accessing their services.

In an opinion piece in the Hong Kong Economic Journal shortly after OKX withdrew its application, lawmaker Duncan Chiu warned that the approval conditions borrowed concepts from traditional finance that he believed were too strict to apply to web3. He added that the remaining applicants were “small in scale.”

At the same time, lawmakers have argued that the SFC also bears the brunt of criticism when scam exchanges exploit Hongkongers. It came under fire last year for the collapse of JPEX, a rogue exchange that has left over 2,600 Hongkongers some $200 million out of pocket. Over 70 people have been arrested as part of a police investigation into the exchange but to date nobody has been charged.

JPEX’s shutdown led to changes in how the SFC shares information about exchanges with the public. Among these changes, it started publishing lists of which companies had applied for licenses – something they had previously declined to reveal – and listing suspicious platforms on its website.
Along with JPEX, several chains of OTC crypto trading storefronts linked to it were raided and shut down by the police, prompting calls to regulate OTC trading. Leung said the SFC has also been seeking industry opinion on licensing for cryptocy OTC and custody services.
Terron Gold

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