Hong Kong Attracts 18 Crypto Exchanges for License 

• Hong Kong SFC receives 18 applications for virtual asset trading platform licenses from local and global crypto exchanges.
• Hong Kong also sees its first application for a spot Bitcoin ETF from Harvest Hong Kong, one of China’s largest fund managers.

Hong Kong’s Securities and Futures Commission (SFC) has seen a surge in crypto license applications from both local and global players in the past two months. On Feb. 20, Huobi HK, the Hong Kong arm of crypto exchange Huobi, became the 18th applicant for a virtual asset trading platform license.

The SFC introduced a new regulatory framework for crypto exchanges in November 2023, requiring them to obtain a license to operate in Hong Kong. The license allows them to offer trading services for security tokens and non-security tokens, such as Bitcoin and Ether, to professional investors.

Applicants must successfully complete strict due diligence procedures, such as a conventional financial audit with a wider scope than proof of reserves, in order to meet licensing standards. Web3 companies, thus, need to invest up to $25 million in developing their apps for these licenses.

Traditional Brokerages Join Exchanges

DFX Labs, OKX, Bybit, and other well-known cryptocurrency exchanges are among the eighteen candidates. Conventional brokerages eager to get into the crypto space are also included. Among those who are persistently seeking licenses are Victory Securities and Tiger Brokers.

Tiger Brokers in January expanded the scope of its Type 1 SFC license to cover cryptocurrency trading for financial institutions and professional investors with headquarters in Hong Kong. 

John Fei Zeng, chief financial officer and director of Tiger Brokers, said:

“Other than stocks and options, crypto is becoming an important asset class. It’s hence a natural extension of business as a broker-dealer to add a new asset class, and the underlying Web3 technology is also integrated with Tiger’s fintech background.”

Not long behind is Victory Securities, which obtained a licence for retail cryptocurrency trading in November 2023. Since they’ve already seen a large increase in the number of virtual asset transactions and new customers, they decided to provide trading discounts in an effort to draw in even more.

Hong Kong’s first Bitcoin ETF

A spot Bitcoin exchange-traded fund (ETF) application was also received by the Hong Kong regulator for the first time on January 26 from Harvest Hong Kong, one of the biggest fund managers in China. Without requiring holders to possess actual Bitcoin, the ETF seeks to monitor its performance and provide investors exposure to the top cryptocurrency.

The Bitcoin ETF is subject to approval by the SFC and the Hong Kong Stock Exchange, and it is expected to face some challenges due to the volatility and regulatory uncertainty of the crypto market. However, if approved, it could be a game-changer for the crypto industry in Hong Kong and beyond.

Hong Kong has set a high bar for the security of its customers’ assets even as it prepares for the adoption of cryptocurrencies. It has mandated that licensed cryptocurrency exchanges managing consumers’ funds have a minimum insurance requirement of 50%. This means that at least half of the assets under custody must be covered by insurance policies. 

In addition, OSL disclosed that it has entered into a two-year agreement for an insurance policy that would insure 95% of the assets of its users with Canopius, a syndicate of Lloyds of London underwriters.

The SFC’s regulatory framework and insurance requirements aim to enhance the security and credibility of the crypto market in Hong Kong, and to attract more institutional and professional investors to the emerging asset class. But the submission of an application does not guarantee its approval.

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