Hong Kong is facing challenges in becoming a leading crypto hub as numerous exchanges encounter obstacles in obtaining full licenses from the Securities and Futures Commission, despite the city’s efforts to establish a favorable regulatory environment.
A recent Bloomberg report highlights the hurdles ahead for Hong Kong’s crypto ambitions.
In-depth Regulatory Oversight on Crypto
The Securities and Futures Commission is closely examining crypto exchanges, with initial findings flagging concerning practices. Reports reveal that 11 exchanges maintained unsatisfactory practices that hindered their path to obtaining licenses, ranging from inadequate cybercrime protection to excessive reliance on a few key executives managing client resources. Notably, Crypto.com and Bullish are under scrutiny, affecting their operations in Hong Kong. Currently, only OSL and HashKey hold full city licenses, and while achieving compliance has been arduous, the SFC aims to issue more licenses by 2024.
Legal experts note that 12 exchanges have withdrawn their license applications, including prominent ones like Bybit and Huobi HK, apprehensive that the stringent SFC regulations may clash with their business models.
The Repercussions of the JPEX Controversy
Increased regulatory scrutiny follows the JPEX scandal, where an unlicensed platform allegedly defrauded thousands of investors, leading to combined losses exceeding $200 million. This incident has accelerated the SFC’s drive for stringent compliance measures, focusing on enhancing client-asset protection and ensuring robust know-your-customer protocols.
The fallout from the JPEX case underscores the SFC’s commitment to safeguarding Hong Kong’s crypto market integrity, leaving aspiring exchanges in a quandary. Many of these firms aimed to cater to mainland Chinese customers despite cryptocurrency trading being prohibited there. Under the One Country, Two Systems framework, exchanges realize the challenges of servicing the vast mainland market from Hong Kong, potentially deterring investors and businesses from establishing a presence in the city.
Competing on the Global Stage
This dilemma pits Hong Kong’s ambitions as a crypto hub against the competition, especially from Singapore. Although Hong Kong has taken positive steps towards creating an open and secure regulatory environment, the sluggish pace of licensing has drawn criticism. Observers question whether Hong Kong can offer a conducive environment for crypto firms compared to jurisdictions with clearer and more supportive regulations.
Despite these challenges, industry insiders remain optimistic, believing that with proper regulation, Hong Kong can reclaim its position as one of the leading crypto hubs worldwide.
Featured image from Getty Images, chart from TradingView
