Four New Members Join Hong Kong Virtual Asset Exchanges: A Quick Overview of Each Background and Latest Regulatory Roadmap

Author PANEWS

After OSL Exchange, HashKey Exchange, and HKVAX, Hong Kong's licensed virtual asset trading platform (VATP) welcomes four new members. On December 18, the Hong Kong Securities and Futures Commission announced that it had granted licenses to four virtual asset trading platforms under the fast-tracked licensing procedure, including Cloud Account Greater Bay Area Technology (Hong Kong), DFX Labs, Hong Kong Digital Asset Trading Group, and Thousand Whales Technology. Meanwhile, the Hong Kong Securities and Futures Commission is accelerating the approval process for virtual asset licenses and formulating a clear roadmap for licensing procedures to further expand Hong Kong's presence in the Web3 space.Four platforms granted licenses by the Hong Kong Securities and Futures Commission
This time, the Hong Kong Securities and Futures Commission approved four platforms at once, bringing the number of licensed virtual asset trading platforms in Hong Kong to seven. HKbitEX: Launched by former HKEX officials, has received tens of millions of dollars in funding. HKbitEX was established in 2019 by Hong Kong Digital Asset Trading Group Limited and is dedicated to providing compliant and regulated digital asset spot trading and over-the-counter (OTC) trading platforms for global professional investors. It is reported that the parent company behind the Hong Kong Digital Asset Trading Group is Taiji Capital Group, which mainly provides tokenized asset services, including three major sectors: capital markets and wealth management, digital asset exchanges, and Web3 SaaS and technology research and development. In September 2023, Taiji Capital announced the launch of Hong Kong's first real estate fund security token offering (STO), issuing tokens PRINCE for a closed-end fund managed by its subsidiary Pioneer Asset Management, with a fundraising target of approximately HKD 100 million. Taiji Capital's founder, Gao Han, previously worked at HKEX, mainly responsible for promoting HKEX products in mainland China, including Stock Connect and Bond Connect, and Taiji Capital has also attracted several HKEX executives to join. As one of the first institutions to apply for the Hong Kong Securities and Futures Commission's virtual asset trading platform license, HKbitEX has undergone multiple rounds of financing, including in December 2022, when HKbitEX announced the completion of a USD 10 million A2 round of financing, led by Axion Global Investment Limited, a subsidiary of Hong Kong-listed company Anling International, and Hanwha Asset Management, with other investors including Dare Ding Innovation Fund, Jianfeng Capital Management, Lenovo Capital and Incubator Group, and Lingfeng Capital; in November 2021, HKbitEX announced the completion of a USD 9 million Pre-B round financing with a total of USD 300 million.
Despite Hong Kong's strong determination to develop Web3, which has attracted many crypto ecosystem projects/platforms to apply for membership, there have been instances of licenses being revoked during the transition period for license applications. By June, only 11 platforms were considered as license applicants, and the challenges facing Hong Kong are significant. To enhance approval efficiency and ensure compliance, Hong Kong launched an inspection program in June this year, completing relevant on-site inspections for all license applicants, which yielded immediate results. Therefore, the Hong Kong Securities and Futures Commission decided to continue this practice when appointing external evaluation experts for the second phase of evaluations for virtual asset trading platforms. "We have always actively communicated and interacted with the senior management and ultimate controllers of virtual asset trading platforms, which helps us clarify the regulatory standards that must be met and accelerate the regulatory standards for virtual asset trading platforms," said Yip Chi Hang, Executive Director of the Intermediaries Division of the Hong Kong Securities and Futures Commission. In the latest circular, the Hong Kong Securities and Futures Commission has also formulated a clear roadmap for the licensing procedure for virtual asset trading platforms: 1. Conduct on-site inspections and provide feedback, requiring the platform to submit corrective action plans. 2. After reaching consensus on the corrective plan, a conditional license will be granted, and the platform will continue to complete corrective measures as planned and conduct penetration tests and vulnerability assessments to obtain satisfactory results before operating within a restricted business scope; 3. Penetration tests and vulnerability assessments should be conducted by independent third parties, and the platform's management must ensure that all important and critical corrective measures continue to be taken. 4. After completing corrective measures, vulnerability assessments, and testing, the platform may be allowed to operate under a restricted business scope. 5. The platform must hire external experts to evaluate the revised policies and procedures (including revised procedures and monitoring), and the Securities and Futures Commission will supervise the entire second phase evaluation process to clarify regulatory requirements and provide feedback on evaluation results. 6. The Securities and Futures Commission will lift the relevant conditions restricting the business scope after the second phase evaluation is completed. This phase of the evaluation will focus on ensuring that the policies, procedures, systems, and monitoring measures (policies and procedures) of the virtual asset trading platform are appropriately designed and implemented and conducted in a directly verifiable manner. "We are striving to regulate this emerging market, but it is by no means easy, as it is a large existing market with advanced technology, borderless characteristics, and imperfect regulations. The Hong Kong Securities and Futures Commission will establish a formal advisory group for all licensed platforms at the beginning of 2025, and each licensed institution will appoint its senior personnel as representatives. This will allow the Hong Kong Securities and Futures Commission to fully listen to and consider their views. This will enable us to brainstorm and systematically prioritize development matters based on investor protection," Yip Chi Hang previously revealed. The Hong Kong Securities and Futures Commission also disclosed that it will provide more guidance on the licensing scheme for new legal persons applying to operate a second virtual asset trading platform license at the beginning of 2025.