Compliance is a well-deserved focus of Hong Kong in 2023. As the first virtual asset exchange approved by the Securities and Futures Commission, OSL has always been a leader in the road to compliance.
On the evening of November 14, according to the official website, OSL's parent company BC Technology Group received a strategic investment of approximately HK$710 million from BGX Group.
According to the announcement, 187.6 million new shares will be issued to BGX, equivalent to about 42.79% of the existing share capital; East Harvest, the existing major shareholder of BC Technology, will dilute its shareholding from 42.77% to 29.96%, while BGX will hold 29.97% in the future. After the completion of this strategic investment, BGX will become the largest shareholder of OSL.
As soon as the news came out, it quickly went viral on WeChat Moments; the total market value of BC Technology Group also once exceeded HK$2.1 billion.
After years of hard work in Hong Kong, what did BC Technology and OSL do right to gain a firm foothold in the Hong Kong virtual asset market? Bailu Living Room shares with you below.
Keep up with the pace of compliance
Compared with the global market, Hong Kong is not a place suitable for "cutting leeks" and making huge profits. The application process for relevant licenses is complicated, costly, and time-consuming, which is almost a "non-profitable" business for exchanges;
However, if we look at the global financial market, the participation of financial giants is the best way for the entire virtual asset industry to gain growth. From this perspective, the high-cost compliance of virtual assets is the real long-term value, and stable and secure transactions are favored by major financial institutions. BC Technology and OSL have long understood this, so they have been keeping up with the pace of compliance.
On November 7, 2019, OSL announced that it had officially submitted an application for a digital asset license to the Hong Kong Securities and Futures Commission (SFC), becoming the first applicant for a license.
On August 21, 2020, OSL received approval in principle for its Category 1 (Securities Trading) and Category 7 (Providing Automated Trading Services) license applications. It also stated that the licenses allow for security tokens and automated virtual asset trading.
On December 15, 2020, OSL was the first to obtain a license from the Hong Kong Securities and Futures Commission (SFC) (Type 1 (Securities Trading) and Type 7 (Providing Automated Trading Services) regulated activities). It officially became the world's first digital asset trading platform licensed by the SFC, listed, with digital asset wallet insurance and audited by the Big Four accounting firms, dedicated to serving institutional and professional investors.
On June 1, 2023, in response to new regulatory requirements for conducting retail digital asset transactions that will take effect on June 1, 2023, OSL announced that it had applied to upgrade its existing license;
On August 3, 2023, OSL announced that it had obtained approval from the Hong Kong Securities and Futures Commission to upgrade its existing license. It was approved to expand digital asset trading services such as Bitcoin and Ethereum to retail investors.
Over the past four years, every time there was a change in Hong Kong government policy, OSL made every effort to keep up and respond. The continuously accumulated compliance advantages have become the foundation for OSL to gain a firm foothold in Hong Kong.
Long-term support from capital power
However, compliance means burning money, and the high probability of Hong Kong compliant exchanges losing money due to costs has become a well-known event. Under this premise, the cost of OSL's long-term operation has obviously become an obstacle to its development, and capital support has become an indispensable part.
On January 29, 2020, OSL's parent company BC Technology completed an equity placement and successfully raised US$36 million, equivalent to HK$280 million. On January 6, 2021, BC Technology announced the signing of an agreement to place shares in the form of old shares first and new shares later, with an estimated fundraising of approximately HK$697 million, equivalent to approximately US$90 million; Morgan Stanley served as the exclusive placement agent for the placement, and a number of institutional investors participated in the subscription of shares. On November 14, 2023, BC Technology announced that crypto giant BGX agreed to subscribe for part of the shares of BC Technology Group, with a valuation of approximately HK$710 million. Although there are still voices in the market that OSL is not doing well, the fact that it has obtained BGX's investment amid a lot of doubts shows the great advantage of OSL's Hong Kong license.
Looking at the global market demand for more opportunities
We have no way of estimating how long the high compliance costs will continue to affect the operation of licensed virtual asset exchanges in Hong Kong. Even if there is a capital base for continued operation, it is difficult to change the status quo and increase profits, and it is difficult to change the doubts OSL faces. This is also what everyone is more concerned about, how OSL will use its advantages to reverse the situation after obtaining financing again.
At present, OSL has adopted two important strategies: one is to continue to adhere to compliance and look at the global market for extensive layout; the other is to actively try to promote financial innovations such as STO under the premise of complying with policies, so as to provide more types of business to more potential investors.
OSL has already taken action to target investors in the global market. On June 2, 2021, OSL's parent company BC Technology announced a partnership to establish a digital asset broker and trading platform to serve institutional and corporate clients in the UK and Europe, connect institutional trading clients with counterparties in the market, and provide a deep liquidity pool for Bitcoin, Ethereum and other digital assets.
On July 15, 2021, OSL announced the official establishment of its Americas division, providing prime brokerage services, including electronic and over-the-counter spot trading execution and digital asset lending services;
On October 19, 2021, OSL announced that it would open its services to professional investors and institutional clients in Latin America;
On December 1, 2021, OSL obtained a Money Services Business registration license (MSB) issued by the Financial Crimes Enforcement Network (FinCEN) under the U.S. Treasury Department;
On December 8, 2021, OSL announced the opening of its services to professional clients in the United States and Canada, marking OSL's entry into the North American market.
On January 13, 2022, OSL signed an agreement with Allaria Technology Services LLC to provide comprehensive, secure and compliant digital asset trading and custody technology and liquidity services to Latin American institutions and professional investors. The agreement stipulates that OSL will provide the OSL SaaS (Software as a Service) digital asset technology portfolio, including digital asset trading, operations and wallet services that run 24/7.
However, despite OSL's intention to leverage its compliance advantages to conduct global business, the high transaction fees of Hong Kong's compliant exchanges still make OSL at a clear disadvantage in global market competition.
In order to gain a firm foothold in the global market, not only does the exchange need to be compliant, but more high-quality large-scale compliant projects such as the Hong Kong government's tokenized green bonds need to emerge. Only by promoting OSL to institutions in various countries and creating stable, compliant and safe returns can it attract the attention of global market investors. Whether OSL can change the situation on its own is still uncertain.
Keep abreast of policies and actively try financial innovation to expand business
OSL in Hong Kong also faces similar difficulties in the global market. However, compared with the global market, the regulatory environment in Hong Kong is still subject to many changes. If OSL can respond quickly to opportunities, it can still seize the opportunity to promote innovation and development.
On November 2, 2023, the Hong Kong Securities and Futures Commission published the "Circular on Intermediaries Engaged in Activities Related to Tokenized Securities", which for the first time clearly explained the retail regulations for tokenized securities and allowed the tokenized securities business to be sold to retail investors.
In response to changes in the regulatory environment, OSL has demonstrated its keen policy sense.
As early as the day before, on November 1, OSL announced on its official website: OSL and Harvest Global Asset Management have submitted a proposal to the Securities and Futures Commission (SFC) of Hong Kong, seeking to take the lead in tokenizing retail fund products under the premise of strictly complying with the regulatory framework of the SFC. It also pointed out that if the SFC authorizes the listing, the fund token product will be sold exclusively through OSL Digital Securities to retail investors in Hong Kong.
Lu Jianbang, vice chairman of BC Group, said: "In this cooperation with Harvest Global, we have invested a lot of energy in the production of fund tokens. This is not only a reflection of OSL's commitment to the market and users, but also a manifestation of the huge potential of financial product tokenization. We will work together to help promote the tokenization exploration of the CSRC to ensure that fund token products can be launched on the market as soon as possible."
“We are excited to see the strong support from the Hong Kong government and the SFC for the development of the regulated digital asset sector and tokenized assets. Our collaboration in driving product innovation and facilitating regulatory compliance is a milestone for OSL and Harvest Global, and an important moment in the development of Hong Kong’s digital finance sector.”
In terms of breaking through, actively following policy changes to innovate and develop is indeed a good move for OSL. From OSL's actions, it can be seen that the team has the capital and technical strength to create new types of projects in the Hong Kong market. If a phenomenal compliant project emerges, there will be an opportunity to create business growth for OSL.
However, the degree of acceptance and recognition of tokenized securities by retail market investors is unknown. For STO projects, To B projects targeting professional institutions have broader growth prospects and are more likely to take advantage of compliance. If there is the ability to promote financial innovation, what results can be achieved in the retail market? What measures will OSL take to solve the current pain points in To B? In addition to STO, what other financial innovations can OSL release to the public?
