11 crypto exchanges in Hong Kong 'deemed to be licensed', paving way for first approvals since 2022

The Hong Kong Securities and Futures Commission has granted initial approval to 11 cryptocurrency exchanges to continue operating in the city, in the first step towards granting the first virtual asset trading platform (VATP) licences since 2022.

Crypto.com, which was founded in Hong Kong and now operates out of Singapore, is the largest of the exchanges "deemed to be licensed". The city currently has just two exchanges approved to serve retail customers, with HashKey being the last to get a licence in 2022 under the previous voluntary scheme.

Under the new regulations passed last year, the deeming arrangement is required for exchanges to continue operating in the city as they await full approval of their licences past June 1, by which point exchanges not seeking a licence were required to cease operations.

Crypto.com is the only exchange in the top 20 by 24-hour trading volume, as measured by CoinGecko, that is still seeking a licence in Hong Kong. The next largest exchange deemed to be licensed is Bullish, which is incorporated in Gibraltar but also operates out of Singapore and New York.

Bullish also has strong ties to Hong Kong. It has been a regular at crypto events in the city and CoinDesk, which Bullish acquired last year, recently announced that it was bringing its major Consensus crypto conference to the city next year.

There are still six VATP operators seeking a licence with no status update on the SFC's website.

The deeming arrangement approvals come just after several exchanges withdrew their applications for a licence under the new virtual asset scheme, which the Hong Kong government hoped would provide the regulatory clarity needed to transform the city into a crypto hub on par with the likes of Singapore or Dubai.

Most of the exchanges that have pulled out had ties to mainland China, where they were founded but left after Beijing's crackdown on the digital tokens. These include local affiliates of major exchanges such as OKX, Binance, HTX, KuCoin, Gate.io and most recently Bybit, which withdrew on May 31.

In a notice last week, the SFC said exchanges should take measures to follow all laws and regulations, including "preventing mainland Chinese residents" from accessing crypto on their platforms. Barring exchanges from serving mainlanders dampened enthusiasm for operating in Hong Kong, an industry insider previously told the post.

The withdrawals raised questions about the progress of Hong Kong's pivot to attract crypto business to the city, an effort it kicked off at the end of 2022. In an opinion piece published by the Hong Kong Economic Journal on Saturday, Legislative Council member Duncan Chiu, who represents the information technology sector, wrote that the withdrawals had "shaken market confidence" in local Web3 development.

Many in the crypto industry have been holding out hope that Hong Kong could be a means of accessing mainland customers. However, Beijing maintains a strict ban on commercial crypto activity on the mainland.

On Monday, the financial authority of Shenzhen, the city just north of the Hong Kong border, issued a warning about speculation in cross-border cryptocurrency trading.

Cryptocurrencies do not have the same legal status as fiat currency, and activities related to the assets are illegal and subject to criminal liabilities, the Shenzhen Local Financial Supervision and Administration Bureau said in a notice published to its website. The regulator noted a recent uptick in crypto-related fraud, which it said poses serious danger to Chinese citizens.

The notice also reiterated that it is illegal to provide internet services to mainland customers without approval. In 2021, a notice from the People's Bank of China saying it is illegal for foreign exchanges to serve mainland citizens accelerated a withdrawal from the market.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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