Hong Kong Authorities to Inspect Physical Locations of Crypto Platforms to Ensure Compliance

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As a researcher with a background in financial regulation and cryptocurrencies, I find the recent developments in the Hong Kong crypto market quite intriguing. The decision by the Hong Kong Securities and Futures Commission (SFC) to inspect virtual asset trading platforms (VATPs) operating in the country is an essential step towards ensuring compliance with counter-terrorism and anti-money laundering laws.

The Hong Kong Securities and Futures Commission (SFC) has announced that it will conduct on-site checks on local cryptocurrency platforms to maintain rigorous adherence. Companies applying for legal operation permits are the focus of these inspections by the SFC.

SFC to Inspect VATPs

Starting from June 1, the Securities and Futures Commission (SFC) requires all virtual asset trading platforms (VATPs) providing trading services to either secure a full license or be classified as “deemed to be licensed”. The interim classification is valid until the companies complete their licensing process. Post-June 1, any crypto platform without a full license or deemed status will violate counter-terrorism and anti-money laundering regulations.

According to an announcement, the visit will ensure platforms adequately protect customer funds:

As a crypto investor, I understand that in the upcoming months, while the prospective VATP (Virtual Asset Trading Platform) applicants are reportedly going through the licensing process, the Securities and Futures Commission (SFC) will carry out on-site inspections to ensure their adherence to the SFC’s regulatory standards. During these inspections, they will be paying close attention to two primary areas:

Recently, HTX’s Hong Kong branch, a significant exchange, withdrew its application for a virtual asset trading license in Hong Kong for the second time. The initial withdrawal occurred in February, shortly after submitting the application. Now, HTX’s subsidiary, HGBL, intends to leave the Hong Kong market in August. Similarly, OKX withdrew its application for a VASP license in Hong Kong and requested customers to withdraw their funds from its platform. Effective May 31, OKX will cease centralized trading services for users in Hong Kong.

As an analyst, I have examined the Securities and Futures Commission (SFC) website, and according to the information available, only OSL Digital Securities and Hash Blockchain are authorized to operate the OSL Exchange and HashKey Exchange respectively. The application process for other entities has resulted in 11 applications being denied, returned, or withdrawn. Notably, there is no list of platforms on the SFC website that have been deemed licensed at this time. However, the SFC may provide an update on the number of approved entities on June 1.

Hong Kong ETF Market

The crypto market in Hong Kong has been abuzz since the Securities and Futures Commission (SFC) introduced six Bitcoin (BTC) and Ether (ETH) exchange-traded funds (ETFs) towards the end of April. However, these spot ETFs have faced difficulties in sustaining significant growth and reported a substantial net loss on May 13. Specifically, there was an outflow of approximately 519.5 BTC, marking a dramatic increase of around 420% compared to the 99.99 BTC outflow noted just two days prior. Among the three major ETF providers, ChinaAMC suffered the largest loss with 251.65 BTC withdrawn, representing over 48% of the total outflow on that day. Harvest followed closely behind with a loss of 147.86 BTC, and Bosera HashKey reported an outflow of 119.99 BTC.

The Securities and Futures Commission (SFC) is reportedly exploring the possibility of enabling staking for Ethereum Exchange-Traded Funds (ETFs). Based on current information, the regulatory body is allegedly in discussions with crypto ETF issuers regarding approval for staking via licensed services. This potential development could broaden investment opportunities, providing passive income streams for individuals. Notably, if approved, Hong Kong would be leading the way in this area, as US authorities have yet to sanction staking for Ethereum ETFs.

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2024-05-28 17:45