Hong Kong SFC to carry out onsite inspections for crypto license applicants

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As a seasoned crypto investor with a strong emphasis on regulatory compliance and security, I welcome the Hong Kong Securities and Futures Commission’s (SFC) rigorous approach to inspecting and licensing virtual asset trading platforms (VATPs). The SFC’s commitment to ensuring that these platforms adhere to stringent regulations, specifically in terms of safeguarding client assets and implementing robust know-your-client processes, is crucial for maintaining trust and integrity within the crypto market.

The Hong Kong Securities and Futures Commission (SFC) intends to conduct inspections at the local workplaces of prospective cryptocurrency trading operators aiming to register as authorized virtual asset trading platforms (VATPs).

The commission issued a reminder in a May 28 statement that the grace period for Value-Added Tax System (VATS) users in Hong Kong will expire on June 1.

Based on the regulatory body’s stance, platforms identified as “required to be licensed” will undergo an on-premises examination.

As a regulatory analyst, I would interpret this statement as follows: I will personally oversee on-site investigations to ensure firms adhere to the SFC’s regulatory standards. The primary emphasis of these inspections will be on their protective measures for client assets and their implementation of effective know-your-client procedures.

Applicants who fail to adhere to the mandatory compliance measures will have their licenses rejected by the SFC. Additional regulatory penalties may be imposed upon them, depending on the severity of the infringement.

Eighteen entities presently bear the label “temporarily authorized,” a status applied while the licensing procedure is ongoing. Following June 1st, any unlicensed platforms providing services will be in violation of anti-money laundering and counter-terrorism regulations.

Additionally, the Securities and Futures Commission (SFC) has made it clear that entities applying for a Voluntary Automatic Exchange of Information (VATP) status are not yet officially licensed. Consequently, they are prohibited from actively promoting their offerings or enrolling new retail clients.

As a researcher, I’d like to add that if the Securities and Futures Commission (SFC) disapproves of a Variable Anomalous Thresholds Partnership’s (VATP) application, it is obligated to propose a strategy for the systematic liquidation of its business operations in Hong Kong. The primary concern should be safeguarding the interests of clients throughout this process.

Currently, just two companies – OSL Digital Securities Limited and Hash Blockchain Limited – hold full licenses as Value Added Tax Providers (VATPs) when this information was made public.

As a researcher studying the developments in the cryptocurrency exchange industry in Hong Kong, I’ve come across recent cases where applicants have retracted their applications due to not meeting the Hong Kong authorities’ stringent requirements. The most recent instance involves Gate.io, the Hong Kong branch of this crypto exchange, which made the decision to withdraw its application on May 22.

OKX, like many other crypto exchanges, followed a comparable path and suspended its operations in Hong Kong following its announcement of withdrawing its license application on May 24th.

As a researcher studying the regulatory landscape of Hong Kong’s financial market, I have observed an increase in cryptocurrency-related scams recently. In March alone, I came across instances where unauthorized platforms falsely claimed to represent two licensed entities in Hong Kong – OSL Digital and Hash Blockchain Limited – to unsuspecting investors. The Securities and Futures Commission (SFC) issued warnings against these fraudulent activities to protect the public from potential losses.

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2024-05-28 15:22