Hong Kong Regulator Flags Issues in Crypto Firms Seeking Licenses, Citing ‘Unsatisfactory Practices’

Hong Kong’s Securities and Futures Commission (SFC) has discovered concerning practices among several cryptocurrency exchanges that are in the process of applying for full licenses.

The SFC’s findings emerged following on-site inspections aimed at evaluating the readiness of these firms to comply with the region’s regulatory standards.

The SFC’s inspections revealed that some exchanges are overly dependent on a small number of executives to manage the custody of client assets.

Hong Kong:
Word on the street is that many exchanges that got temporary licenses are not going to pass the tests to be fully registered.
This puts into question whether Hong Kong really will be a global crypto hub, with only two fully licensed exchanges operating in the city.

— 🤫dbc (@dbc___) August 27, 2024

Additionally, the report indicated that some firms are failing to implement adequate measures to guard against cybercrime, raising significant concerns about the security and robustness of their operations.

Potential Licensing Impact on Crypto Exchanges

These inspections could have serious consequences for the exchanges involved. If critical deficiencies identified during the inspections are not addressed, the SFC may revoke the temporary licenses currently held by these entities or deny their full license applications altogether.

This could pose a significant setback to Hong Kong’s ambitions of positioning itself as a global cryptocurrency hub.

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🚨 Hong Kong cracks down on noncompliant crypto exchanges! SFC finds deficiencies in “deemed-to-be-licensed” platforms, risking their licensing amid tightened regulations. ⚖️🔍#Cryptonews #Crypto pic.twitter.com/X4wnOlNO11

— 24h.bz (@24hbz) August 24, 2024

Among the 11 entities applying for full licenses are prominent names such as Crypto.com, HKbitEX, PantherTrade, and Bullish.

Although the SFC has not publicly named the specific entities with deficiencies, the situation underscores the regulatory challenges that lie ahead for these firms.

Hong Kong’s Crypto Ambitions Face Challenges

Hong Kong’s drive to become a leading centre for cryptocurrency trading has encountered hurdles as a result of these regulatory findings.

Earlier this year, the SFC had expressed its intention to conduct rigorous inspections of crypto trading platforms as part of its licensing process.

The regulator’s latest actions reflect its commitment to enforcing high standards of security and governance within the industry.

Hong Kong:
Word on the street is that many exchanges that got temporary licenses are not going to pass the tests to be fully registered.
This puts into question whether Hong Kong really will be a global crypto hub, with only two fully licensed exchanges operating in the city.

— 🤫dbc (@dbc___) August 27, 2024

Notably, 12 entities, including OKX and ByBit, have already withdrawn their applications, leaving only two fully licensed exchanges, OSL and HashKey, operating in Hong Kong.

This development could slow Hong Kong’s progress in establishing itself as a global leader in the crypto space, despite the region’s recent approval of spot-crypto products.

Conclusion: Uncertain Future for Hong Kong’s Crypto Aspirations

The SFC’s findings highlight the ongoing challenges for crypto exchanges in meeting regulatory standards.

With the potential for license rejections and the revocation of temporary licenses, the path forward for Hong Kong’s ambition to become a crypto hub remains uncertain.

The coming months will be crucial as these firms work to address the deficiencies identified by the SFC.