Bloomberg recently reported the Hong Kong Securities and Futures Commission (SFC) has found that some exchanges awaiting licenses are not managing cybercrime risks appropriately. Others are too dependent on a handful of executives to supervise the custody of client assets. Crypto exchanges that have yet to receive full operational licenses in Hong Kong include Crypto.com, Bullish, HKbitEX, PantherTrade, Accumulus, DFX Labs, Bixin.com, EX.IO, YAX, WhaleFin and Matrixport HK. They need to tread carefully because of new legislation (effective June 1) that criminalizes the act of operating an unlicensed virtual asset trading platform (VATP). The SFC has said it would actively pursue companies violating the regulation.
Thus far, just two exchanges, OSL and HashKey, are fully licensed in Hong Kong. Some others have thrown in the towel, likely because of compliance shortcomings. These exchanges include OKX, Bybit and Huobi HK.
Hong Kong’s strategy of rejuvenating itself as a financial services hub by betting big on cryptocurrency was always risky, especially when the city cannot legally serve the largest nearby market: mainland China. Even assuming that it avoid falling afoul of mainland regulations, the crypto sector itself is still immature and riddled with problems. It also remains unclear if cryptocurrency enhances financial systems and economies as its advocates insist. Major countries like the U.S., China and India have all taken a cautious approach towards digital assets for this reason.
Hong Kong should invest more resources into developing itself as a broader fintech hub instead of concentrating so much effort on one risky sector of the industry. It would be wise to look at industry segments not so tightly restricted on the mainland as well as opportunities in the rest of the region.