Cryptocurrency scams were a big part of tech headlines all through 2023, as well as the few years preceding it. Governments all over the world are starting to crack down on the situation—and Hong Kong is the newest country to step up to the plate. Hong Kong introduced a new law that required virtual asset trading platforms (VATPs) to obtain a special licence to offer their services to the public.
So far, only two platforms—HashKey and OSL—have obtained the necessary paperwork. The final deadline to obtain the licence given by the Securities and Futures Commission (SFC) will lapse in the month of May this year. The SFC is the top financial regulator in the territory. It published a special announcement on the 5th of February this year to reiterate the necessity of its authorisation to operate. Investors who aren’t certain whether the platforms they trade on have obtained the licence can do so by checking the list of virtual asset trading platforms published by the SFC. They can also check the list of VATP applicants—the platforms that submitted their licence applications on or before the 29th of February 2024 will appear on this list.
The SFC also recommends that investors check on the licences of the platforms they use regularly—especially on the 1st of March 2024. According to the new regulations, VATPs that do not at least submit their licence applications on the 29th of February will be made to shut their businesses down by the 31st of May 2024. Investors who find themselves dealing with platforms that refuse to obtain the licence should quickly look into shutting down their accounts and shifting their portfolios elsewhere. Failing to do so can put your hard-earned funds at risk of being lost forever.
Even VATPs appearing on the applicant risk have some risk involved, given that they might ultimately fail to obtain the licensing. It is important, therefore, that investors also keep a careful eye on the “list of applicants whose licence applications have been returned, refused, or withdrawn”, as well as the “list of closing-down virtual asset trading platforms”. Platforms that obtain the SFC’s licences will subsequently be subject to rigorous regulations to minimise the risks of fraud and negligence (among others) for investors.
The SFC is currently in the process of reviewing the licence application submissions of 14 crypto firms. These include popular VATPs OKX and Bybit. The SFC’s crackdown on unregulated trading platforms isn’t limited to this licensing exercise either. According to reports, the government will soon publish a consultation on a broader regulatory framework for over-the-counter crypto trading platforms. This information was revealed to the public in a blog post by the Secretary for Financial Services and the Treasury, Christopher Hui. These platforms have been identified as having played a prominent role in several fraud cases in the country. The government is also currently conducting a consultation on a proposed regulatory framework for stablecoin issuers. One of the suggestions so far includes all qualified fiat-referenced stablecoin issuers to also obtain a licence that the Hong Kong Monetary Authority (HKMA) provides. These licences will only apply to stablecoins that reference the value of one or more fiat currencies in the country. The consultation, which is set to last two months, will conclude at the end of February.
It is clear that the Hong Kong government intends that stablecoins play an important role in the country’s economy going forward. According to Eddie Yue, the Chief Executive of the HKMA: “Stablecoins could become the interface between traditional finance and the virtual asset market.” Yue elaborated that the proposed regulatory framework should account for the level of integration that will take place once stablecoins become one of the preferred payment methods of the general public. Yue’s words reflect the Hong Kong government’s forward-thinking approach towards cryptocurrency’s potential for growth: “In Hong Kong, there are multiple mediums of exchange that have been used extensively over time and proven effective, such as traditional bank deposits and stored value facilities. The HKMA and the banking industry have also been actively exploring the potential use cases of central bank digital currency and tokenised deposits. An obvious question would be, with all these options is there really a need for yet another alternative? We believe the answer lies in the hands of the end users…”
Although the approach may appear logical, it is not one chosen by every regulatory authority. Hong Kong’s neighbour and future administrator, China, for example, has responded to cryptocurrency trading and mining by shutting everything down completely. China implemented a ban on all digital tokens and all virtual currency-related business activities as far back as 2021. Hong Kong’s new regulatory developments, on the contrary, amends the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, which predates digital tokens. The current trend in crypto-regulation in Hong Kong indicates that regulations will be very stringent without banning them outright. The standards set for VATP licensing too are pretty high, ensuring that only the institutions with the resources and the commitment to meet them can obtain them.
The deadline at the end of this month for obtaining VATP licences will be followed by heavy enforcement of the regulation on platforms that attempt to fly under the radar. Some of the larger trading platforms that have not obtained the licensing have already begun blocking access from Hong Kong.
(Theruni M. Liyanage)