Hong Kong’s Crypto Platforms Face June Licensing Deadline

As Hong Kong aims to establish itself as a significant cryptocurrency hub, its regulatory framework is evolving rapidly. The Securities and Futures Commission (SFC) has set a critical deadline for June 1, 2024, requiring all virtual asset trading platforms (VATPs) operating in the region to either secure a license or qualify as “deemed-to-be-licensed” under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). This move seeks to enhance investor protection and ensure adherence to stringent anti-money laundering (AML) and counter-terrorism financing (CTF) laws.

The SFC mandates that all VATPs must be licensed or hold a temporary “deemed-to-be-licensed” status to operate legally post-June 1, 2024. This transitional status applies to platforms that were active before the introduction of the new licensing regime on June 1, 2023. These platforms must demonstrate robust policies, procedures, and controls to safeguard client assets and maintain effective know-your-client (KYC) processes.

Post-deadline, operating without the proper license will be a criminal offense, with the SFC pledging strict enforcement. The regulator emphasizes that investors should only trade on SFC-licensed VATPs and check the SFC’s lists of licensed and closing-down platforms to avoid dealing with non-compliant entities.

In the months leading up to the deadline, the SFC will conduct on-site inspections of deemed-to-be-licensed VATPs to ensure compliance with regulatory standards, focusing on client asset protection and KYC processes. Findings from these inspections will influence the final licensing decisions. Non-compliant platforms will face regulatory actions, including possible license denial and mandated business closure plans to safeguard client interests.

The upcoming deadline has already prompted significant market shifts. Several high-profile exchanges, including OKX and Huobi Hong Kong, have withdrawn their license applications, citing difficulties in meeting the SFC’s stringent requirements. Currently, only OSL Digital Securities Limited and Hash Blockchain Limited have secured licenses from the SFC.

This rigorous regulatory approach has elicited mixed reactions within the industry. While it aims to strengthen investor protection and compliance, there are concerns it could stifle innovation and drive companies out of Hong Kong.