Hong Kong’s SFC to Conduct On-Site Inspections of Crypto Platforms Ahead of Key Compliance Deadline

May 29, 2024

Hong Kong’s ambition to establish itself as a premier cryptocurrency hub is facing a critical test as the Securities and Futures Commission (SFC) prepares for on-site inspections of crypto trading platforms.

This comes ahead of a compliance deadline on June 1. By this date, all virtual asset trading platforms (VATPs) operating in Hong Kong must either be fully licensed or hold a temporary “deemed-to-be-licensed” status, pending full compliance.

The SFC’s inspections aim to ensure that these platforms meet stringent regulatory standards, particularly in safeguarding client assets and adhering to KYC protocols. Failure to comply with these regulations beyond the deadline will constitute a criminal offense, violating anti-money laundering and counter-terrorism laws.

As of now, only OSL Digital Securities and Hash Blockchain have secured full licenses. Meanwhile, 18 entities have applied for licenses and are under review, though 11 have either withdrawn their applications or been removed from consideration. Among the notable withdrawals are crypto exchanges OKX and Huobi Hong Kong, raising questions about the future compliance of other applicants.

The SFC’s scrutiny is part of Hong Kong’s broader strategy to attract and regulate the burgeoning crypto industry. However, the pressure is mounting as the deadline approaches. The SFC has made it clear that applicants should not actively market their services or onboard new retail clients until they achieve full licensing status.

In the coming months, while the deemed-to-be-licensed VATP applicants pursue their applications, the SFC will conduct on-site inspections to ascertain their compliance with its regulatory requirements, the regulator announced, emphasizing the importance of client asset protection and robust KYC processes.

This regulatory push is crucial for Hong Kong’s reputation as a global crypto hub. The outcome will likely influence investor confidence and the region’s attractiveness to crypto businesses. As the June 1 deadline nears, all eyes are on how many of the remaining applicants will meet the SFC’s rigorous standards and secure their place in Hong Kong’s regulated crypto market.

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