Hong Kong Halts Crypto Exchange Licensing Applications

Hong Kong has undergone a significant regulatory transformation by formally discontinuing the acceptance of cryptocurrency exchange license applications starting February 29.

The Securities and Futures Commission (SFC) has explicitly mandated that cryptocurrency trading platforms lacking a license must halt their operations in the region by May 31, 2024.

Investors involved with virtual asset trading platforms have been instructed by the SFC to make early preparations for the transfer of their assets to licensed entities or those currently in the process of securing a license. At present, the SFC has granted formal licenses only to OSL Digital Securities and HashKey Exchange, with approvals received on December 15, 2020, and November 9, 2022, respectively.

Out of the 22 crypto trading platforms seeking operational licenses under the new regulatory framework, four were initially part of the SFCs optional regime for crypto trading platforms. However, Huobi HK, Meex, BitHarbour, and Ammbr either withdrew their applications or had them returned by the SFC. In a bid to enhance investor protection and transparency, the SFC intends to publicly disclose a list of crypto platforms mandated to cease operations, underscoring the risks associated with unlicensed trading activities. Throughout the wind-down period leading to the May 31 deadline, affected exchanges will encounter restrictions on operational capabilities, including a prohibition on all marketing activities within Hong Kong.

Subsequent to closure, the SFC will release a roster of exchanges considered licensed as of June 1, 2024, though this does not assure approval for all applicants. Authorized platforms will be allowed to onboard retail investors for trading Bitcoin, Ether, and potentially other altcoins and stablecoins, contingent upon SFC review.

These regulatory adjustments closely follow the abrupt cessation of BitForex, a Hong Kong-based cryptocurrency exchange, after an undisclosed withdrawal of $57 million from its hot wallets. The situation was brought to light by blockchain detective ZachXBT, who noted BitForex's suspension of withdrawal transactions and the unresponsiveness of its team.