Hong Kong Tightens Crypto Regulations with New Licensing Deadline

February 6, 2024

By Sharan Kaur Phillora

In a decisive move to regulate the virtual asset sector, Hong Kong has introduced a stringent licensing regime for Virtual Asset Service Providers (VASPs). Christopher Hui, the Secretary for Financial Services and the Treasury emphasized Hong Kong’s principle of “same activity, same risk, same regulation,” underscoring the region’s commitment to ensuring a secure and regulated environment for cryptocurrency transactions.

Here’s what we know:

Before the new regulations, VASPs operating in Hong Kong were given a grace period to align with the updated regulatory standards. However, Christopher Hui has now announced a critical deadline: these entities must submit their licensing applications to the Hong Kong Securities and Futures Commission (SFC) by February 29th. The SFC will issue “no-deeming notices” to disqualify entities that fail to meet the regulatory requirements, with a final deadline for compliance set for May 31st.

Addressing concerns over over-the-counter (OTC) venues, which have been implicated in fraudulent activities involving unlicensed crypto platforms, Mr. Hui revealed plans to regulate these venues more closely. A consultation process for this regulatory framework is expected to commence shortly.

Mr. Hui also cautioned investors about the volatile nature of virtual assets and advised dealing only with SFC-licensed platforms to minimize the risk of fraud. This cautionary stance comes as Hong Kong has begun allowing selected platforms to offer Bitcoin and Ethereum trading to retail investors with strict SFC oversight.

The regulatory revamp has sparked significant interest in the region’s cryptocurrency investment landscape. Reports suggest that up to ten firms are exploring cryptocurrency-related investment products, with some already progressing towards launching the region’s first spot crypto exchange-traded funds (ETFs).

Notably, HashKey, a certified Hong Kong crypto exchange, is in talks with asset managers about launching spot crypto ETFs, potentially introducing Bitcoin spot ETFs as early as the first quarter of 2024.

Harvest Fund Management is also making waves, reportedly initiating the process of launching a pioneering Bitcoin ETF, with a formal application already submitted to the SFC. This series of developments marks a significant step in Hong Kong’s efforts to position itself as a leading, regulated hub for cryptocurrency trading and investment.

About the author

Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.