During its recent inspections, the Hong Kong Securities and Futures Commission (SFC) found the following deficiencies in the virtual commodities market: Some of these inspections showed that many firms need to comply with the set guidelines, with compliance gaps seen in asset management and cyber security. The SFC noted that such platforms could have their provisional licenses revoked or their applications denied.
Hong Kong Crypto Exchanges Lack Cybersecurity
The SFC also noted that some crypto firms have a centralized model where a few executives hold assets. This dependency makes one wonder about their capability to safeguard their clients’ funds. The inspections also revealed that the organizations had no proper mechanisms to protect against cyber threats, which is important for digital assets. The SFC also stressed that the risk management measures should be sufficiently strong and pointed out that failure to address these problems may result in severe penalties for the respective platforms.
Among the 11 exchanges flagged down are international giants, including Crypto.com and Bullish, while the local ones include HKbitEX and Matrixport HK. These firms are already under inspection due to Hong Kong’s measures to control its cryptocurrency market. The measures taken by the SFC align with Hong Kong’s policy of enforcing compliance with specific rules across all media. Nevertheless, the names and details of the companies that do not meet the set standards are not disclosed, and the inspections continue.
SFC Clamps Down on Crypto Licensing
Advertisement
The SFC is very particular in its regulatory mechanisms as part of the city’s plan to become one of the world’s leading financial centers. However, this has created reluctance as applications have been withdrawn from 12 companies, including Huobi HK and OKX. Skeptics have pointed out that these outflows, stemming from regulatory issues, could erode the market sentiment and dampen the city’s attempts to position itself as a hub for Web3 investment and human capital.
Only two platforms, OSL and HashKey, have full licenses in Hong Kong, with more to follow by 2024. The SFC is currently concentrating on granting full permits to applicants who have met the high standards set. The results of these inspections and the subsequent regulation will probably dictate the further development of the cryptocurrency market in Hong Kong. While the city faces these obstacles, experts believe some companies could try to obtain new licenses once they resolve the issues. While this is the case, the launch of cryptocurrency ETFs in Hong Kong presents a competitive advantage over similar products in the United States.
Advertisement
Also Read: Hong Kong Ramps Up Crypto Scrutiny, Flags 7 Unlicensed Crypto Exchanges
