Crypto Quill

Hong Kong’s Securities and Futures Commission (SFC) has issued a warning to crypto exchanges operating in the city to apply for a virtual asset trading platform (VATP) licence by February 29 or face legal consequences. The regulator also reminded investors to trade only on licensed platforms to avoid risks of hacking, fraud, and misappropriation of assets.

SFC Urges Investors to Trade Only on Licensed Platforms

The SFC published a notice on February 5, stating that a number of crypto exchanges have applied for a VATP licence, but their applications are still under review and do not guarantee approval. The regulator strongly urged investors to trade virtual assets only on SFC-licensed VATPs, as they may leave themselves unprotected by trading on unlicensed platforms.

The SFC also advised investors to check the list of licence applicants on its website and to prepare to withdraw their funds from unlicensed platforms by May 31, 2024. The regulator cautioned that using crypto exchanges that have not been approved carries a risk, as they may be involved in illegal activities, such as staking, which is prohibited under the city’s virtual asset regulation.

Hong Kong’s Virtual Asset Regulation Took Effect Last Year

Hong Kong’s virtual asset regulation took effect last year as an amendment to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. The regulation requires crypto exchanges that offer services to Hong Kong residents to apply for a VATP licence by February 29, 2024 or cease operations by June 1, 2024.

The regulation aims to enhance investor protection and combat money laundering and terrorist financing risks associated with virtual assets. The SFC has pledged to improve public awareness of crypto and investment scams to protect investors.

Only Two Crypto Exchanges Have Received Approval to Serve Retail Investors

To date, only two crypto exchanges in Hong Kong have received approval to offer services to retail investors: OSL and HashKey Exchange. Both applied for a voluntary licence under the previous rules and had their licences upgraded last summer, allowing them to serve retail investors, a feature of the new scheme that had been barred under the previous licence.

Fourteen other firms have applied for licensing, but their applications are still being processed. Some of the applicants include Binance-linked exchange HKVAEX and Singapore-based crypto derivatives platform Bybit. The SFC has not disclosed the names of the other applicants.

Hong Kong Continues to Crack Down on Crypto Scams and Illegal Activities

The SFC’s warning comes amid ongoing investigations into several platforms in Hong Kong, including crypto exchange JPEX, which was involved in a fraud that resulted in losses of HK$1.5 billion (US$192 million) last fall. The regulator also listed 12 other platforms as suspicious on its website and urged investors to report any suspicious activities to the police.

Despite the government crackdowns and the regulatory uncertainty, Hong Kong remains a vibrant crypto hub, attracting both local and international players. The city also hosts several crypto events, such as the Hong Kong FinTech Week, which showcased the latest developments in tokenisation and central bank digital currencies.