- Hong Kong’s FSC is dissatisfied with the exchange services provided by deemed-to-be-licensed crypto firms.
- If the exchanges do not adhere to the FSC’s requirements, they will not receive full licenses to operate legally in the jurisdiction.
A Bloomberg report revealed that Hong Kong’s Securities and Futures Commission (SFC) is dissatisfied with crypto exchanges in the process of receiving a full operational license. Unnamed sources close to the matter told Bloomberg about on-site visits conducted by the regulator’s personnel brought to light concerning practices of these deemed-to-be-licensed exchanges.
Of the 11 firms awaiting licensing—Crypto.com, Bullish, HKbitEX, PantherTrade, Accumulus, DFX Labs, Bixin.com, EX.IO, YAX, WhaleFin, and Matrixport HK—some failed to implement protocols to adequately thwart cybercrime. Furthermore, those exchanges also relied heavily on a few top executives handling custody requirements for their users. However, it is not clear which of the firms waiting to get licensed exhibited these concerns.
SFC Forbids Deemed-to-be-Exchanges From Onboarding New Clients
An SFC spokesperson mentioned that the inspection visits were conducted to check if the platforms were adhering to the requirements of the licensing process “with a particular focus on their safeguarding of client assets and know-your-client processes.” Those that do not meet the requirements and possess “critical deficiencies identified during on-site inspections, the SFC may opt to remove their deemed-to-be-licensed status or refuse their license applications.”
As the process unfolds, exchanges adhering to the standards expected by the regulator will receive their licenses by the end of 2024, as stated by its CEO Julia Leung. At the moment, only two exchanges are fully registered in Hong Kong—HashKey and OSL. 12 other exchanges that were operating before the licensing structure came out pulled out because they did not want to continue operating under the new regulation. The 11 exchanges that have applied were instructed by the SFC to pause onboarding new clients until they receive full licenses at the end of the year.
The regulator’s shift to the strict approach comes after a scam orchestrated by unlicensed crypto platform JPEX in which it stole $205 million from 2,636 victims.
