New Regulations in Effect: Hong Kong Discloses 17 Crypto Exchange Applications, Binance and Huobi Withdraw
As of June 1, new regulations have come into effect in Hong Kong, requiring all virtual asset trading platforms (VATPs) operating or marketing to investors in Hong Kong to be licensed by the Securities and Futures Commission (SFC). The SFC has revealed a list of two licensed crypto trading platforms and 17 pending applicants, emphasizing that operating without a license constitutes a criminal offense.
Key Points of the New Regulations
The new regulations aim to bolster investor protection and market integrity by mandating comprehensive applications that include management experience, industry qualifications, and external certifications. Specific rules encompass token admission standards, anti-money laundering (AML) requirements, and a ban on proprietary trading. Additionally, platforms must secure sufficient insurance or compensation arrangements to cover custodial risks.
Current Licensed Platforms
As of the June 1 deadline, the only two licensed VATPs in Hong Kong are OSL and Hash Blockchain (HashKey). The SFC has also published a list of 17 pending applicants, clarifying that these platforms have not yet met regulatory standards. Investors are advised to verify licenses and exercise caution with unlicensed or provisionally licensed platforms, which may face shutdown if not approved.
Notable Applicants and Market Reactions
The list of pending applicants includes notable entities such as Hong Kong BGE Limited, Hong Kong Digital Asset EX Limited, and Hong Kong Virtual Asset Exchange Limited. Several crypto exchanges, including Okx and Gate.hk, have announced their exit from the Hong Kong market due to the new regulatory framework.
Withdrawal of Binance and Huobi
Binance and Huobi, along with other major exchanges like OKX, decided to withdraw their applications in the final week of May, citing challenges in excluding mainland Chinese users. The SFC requires all VATP applicants to sign an undertaking ensuring they have no mainland Chinese users, posing a significant hurdle for traditional offshore exchanges. Despite efforts by OKX to form an industry alliance against this regulation, they were ultimately unsuccessful.
Industry insiders suggest that withdrawn entities could reapply in the future with modified corporate structures, provided they do not use similar offshore exchange branding.
Implications for Hong Kong’s Web3 Ambitions
The withdrawal of major players like OKX has led to skepticism within the crypto community about Hong Kong’s commitment to its Web3 ambitions. Critics argue that the authorities’ conservative and risk-averse approach, rooted in traditional financial thinking, undermines the competitiveness and flexibility of the licensing regime. Consequently, several operators chose to withdraw their applications at the last stage, despite significant resource investment and upfront costs.
Conclusion
Hong Kong’s new regulatory landscape for virtual asset trading platforms aims to enhance market integrity and investor protection. However, the stringent requirements have led to significant market exits and raised questions about the region’s future as a hub for digital assets and Web3 innovation.
