Hong Kong SFC to Conduct On-Site Inspections of Crypto Platforms Post-Licensing Deadline

The Hong Kong Securities and Futures Commission (SFC) has announced plans to perform on-site inspections of virtual asset trading platforms (VATPs) that have not completed their regulatory applications following the June 1 licensing deadline.

This initiative serves as a stern reminder to cryptocurrency companies of their obligation to secure licensing by the specified date. Post-deadline, all local crypto trading platforms in Hong Kong must be licensed or classified as “deemed-to-be-licensed” under a temporary framework for firms operating prior to the new licensing regime.

Criminal Charges for Unlicensed Operations

Operating an unlicensed VATP in Hong Kong after the deadline will be a criminal offense, triggering the SFC to ensure regulatory compliance through on-site inspections. These inspections will focus on client asset safeguarding and Know Your Customer (KYC) processes.

The SFC has strongly advised investors to use only licensed platforms for cryptocurrency trading. Furthermore, firms applying for licenses are cautioned against marketing services or onboarding new retail clients until they receive formal licensing. Additionally, they must prevent access to their services by mainland Chinese residents.

Licensing Challenges and Withdrawals

In the run-up to the licensing deadline, several crypto exchanges and companies have withdrawn their applications. Notably, eleven firms, including OKX and Huobi’s local branch, pulled their applications, leaving 18 still pending approval.

Gate.HK, one of the exchanges awaiting approval, ceased activities related to acquiring new users, halted marketing, blocked deposits from existing users, and began delisting tokens on May 23. The exchange plans to relaunch after restructuring to comply with regulatory standards.

To date, only two companies—OSL Digital Securities Limited and Hash Blockchain Limited—have been granted licenses to operate in Hong Kong.

Hong Kong’s Crypto ETF Launch

In a significant development, Hong Kong has launched its first batch of cryptocurrency-focused ETFs. Harvest Global Investments Ltd., in partnership with HashKey Capital Ltd. and Bosera Asset Management (International) Co., listed Bitcoin and Ether ETFs. Analysts predict that these funds could gather around $1 billion over the next two years.

Rebecca Sin from Bloomberg Intelligence and the CEO of CF Benchmarks, a Kraken subsidiary, foresee substantial growth, anticipating that Hong Kong crypto ETFs will accumulate over $1 billion in assets by the end of 2024.