Despite the vision to establish Hong Kong as the premier blockchain and cryptocurrency hub, a significant setback has arisen concerning cryptocurrency exchanges as SFC policies remain rather strict and require higher levels of licensing. Since June, the SFC has been conducting on-site inspections of various crypto platforms in part due to their accreditation of deemed status as licensed exchanges. These inspections are supposed to check any non-compliance with SFC regulations. Still, revelations have pointed out some gaps and thus worry over Hong Kong’s prospects of creating a hub for digital assets.
Sources indicate that some exchanges have failed to meet the SFC’s standards in critical areas, such as safeguarding client assets and preventing cybercrime. Due to the involvement of a small group of executives in handling these vital functions, this has been cited as a primary concern, adding pressure to the platforms to meet the regulatory requirements. As the inspections of the SFC, these observations could change over time, adding more problems to the corresponding platforms.
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Compliance Issues Pose Threats to Crypto Exchanges
The SFC has not named which exchanges have fallen short of its standards, but the repercussions of these inspections are already apparent throughout the industry. Among the 11 exchanges under review are prominent names like Crypto.com, Bullish, and HKbitEX. These platforms have been banned from admitting new clients due to regulatory constraints until they obtain full licenses, a scenario that has significant ramifications for businesses.
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Also, the SFC has warned that any platform it finds wanting to address the outlined concerns will face the full force of the law. They stand to lose their deemed-to-be licensed status or fail to obtain a license in the first instance, which would necessitate re-application and, therefore, extend their operating integration time. This heightened scrutiny comes after a recent scandal involving JPEX (an unlicensed crypto platform accused of defrauding investors of HK$1.6 billion ($205 million) was reported consequently intensifying the SFC’s regulatory efforts.
The SFC has stated that full licenses, likely to be awarded by the end of 2024, would only be granted to applicants who comply entirely with all laws. The emphasis will be on those that provide strong client asset protection and follow thorough know-your-client (KYC) processes.
Conclusion
Hong Kong’s route to becoming a worldwide crypto powerhouse is proving more difficult than expected, with rigorous regulatory oversight providing substantial barriers for exchanges. The regular SFC inspections and increased emphasis on compliance demonstrate the city’s commitment to building a secure and dependable digital asset market. Still, they also show the challenges associated with accomplishing this aim.
Also Read: Hong Kong Lobby Gears up to APPROVE 11 New Crypto Exchanges
Maxwell Mutuma
Maxwell is a crypto-economic analyst and Blockchain enthusiast, passionate about helping people understand the potential of decentralized technology. He writes extensively on topics such as blockchain, cryptocurrency, tokens, and more for top publications such as Coingape, Coin Edition, and The Coin Republic. His goal is to spread knowledge about this revolutionary technology and its implications for economic freedom and social good.