Written by: Mankun Blockchain Legal Services
Recently, the Hong Kong Securities and Futures Commission (SFC) updated its list of licensed virtual asset trading platforms. Since 2020, Hong Kong has issued licenses for virtual asset trading platforms approximately every two years. However, only two months after HKVAX was licensed, four new licensed platforms were added at once. Who are they? What impact will the addition of these new platforms have on the development of Hong Kong's Web3 industry? Today, Mankun Lawyers will take you to explore.
▲Source: SFC official website
What is a virtual asset trading platform operator?
With the rapid development of global virtual assets, especially the continuous approval of Bitcoin and Ethereum ETFs, the importance of virtual asset trading platforms as the 'hub' of the market has become increasingly prominent.
Virtual asset trading platform operators refer to centralized virtual asset trading platforms that operate in Hong Kong or actively promote services to Hong Kong investors. Their main characteristics include:
1. Centralized operation;
2. Operating in Hong Kong or promoting services to Hong Kong investors;
3. Providing virtual asset trading services
Operators meeting the above conditions must apply for the relevant licenses from the Hong Kong Securities and Futures Commission and accept its regulatory oversight.
According to the Securities and Futures Ordinance (Chapter 571) and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615) (Anti-Money Laundering Ordinance), compliant virtual asset trading platform operators typically need to hold the following licenses:
1. License 1 (securities trading);
2. License 7 (providing automated trading services);
3. AMLO license (anti-money laundering compliance).
Compared to subjects that only need to hold License 9 ('Asset Management') to engage in virtual asset investment activities, the compliance threshold for virtual asset trading platforms is significantly higher. This difference mainly arises from the SFC's greater focus on market integrity, transaction security, and investor protection for VATP, while License 9 emphasizes compliance in asset management and fund operations.
If you are interested in further understanding the differences between VASP (Virtual Asset Service Provider) and VATP licenses (Virtual Asset Trading Platform), you can refer to Mankun Lawyers' previous research article (Hong Kong Virtual Currency License Application, What is the Difference Between VASP and VATP? | Mankun Web3 Legal Knowledge). We conducted an in-depth comparison between the two in that article.
Overview of newly licensed platforms
HKbitEX
Background: Hong Kong Digital Asset Trading Group (HKbitEX) is a subsidiary of Taiji Capital Group Limited, holding Class 1, Class 7, and AMLO licenses issued by the SFC.
Business Scope: Based in Hong Kong, the business covers several regions in Asia.
Parent Company Overview: Taiji Capital was established in 2018 and focuses on developing a digital financial ecosystem, combining blockchain with compliant Web3 technology to support the development of the real economy. It includes four wholly-owned subsidiaries: HKbitEX, Pioneer, O'Hash, and ON1ON Limited.
Accumulus
Background: Accumulus is operated by Cloud Account Greater Bay Area Technology (Hong Kong) Limited and serves as the overseas business headquarters of the Chinese Fortune 500 company Cloud Account Technology (Tianjin) Limited.
Platform Positioning: Focused on providing long-term stable cryptocurrency trading services for Hong Kong users.
Parent Company Overview: Cloud Account is China's largest online human resources service enterprise, with a revenue of 108.4 billion RMB in 2023 and tax payments of 7 billion RMB, projected revenue of 120 billion RMB in 2024. The company is headquartered in Tianjin, China.
DFX Labs
Background: DFX Labs is a subsidiary of the publicly listed company Lianlian Digital (02598) and holds Class 1, Class 7, and AMLO licenses issued by the SFC.
Core Business: Focus on providing compliant virtual asset trading services.
Parent Company Overview: Lianlian Digital, established in 2009, has achieved a total payment amount (TPV) of 2 trillion RMB, covering over 100 countries and regions worldwide. The company is headquartered in Hangzhou, Zhejiang, China.
EX.IO
Background: EX.IO is operated by Thousand Whales Technology (BVI) Limited, with major investors including Huasheng Capital under Sina.
Platform Characteristics: EX.IO claims to be the first licensed institution in Hong Kong with a securities brokerage background.
Investor Overview: The backing investors include Sina Group, Longling Capital, and Weixin Jinke (HKG:2003). Sina Group strategically invested in Huasheng Capital in 2017, which is headquartered in Hong Kong.
Why has Hong Kong begun to accelerate the licensing speed?
This action by Hong Kong demonstrates its commitment to building an Asian Web3 hub. The four newly licensed virtual asset trading platforms were processed through a 'fast licensing procedure.' Dr. Ye Zhiheng, Executive Director of the Intermediary Institutions Department of the Hong Kong Securities and Futures Commission, stated that they would 'accelerate the licensing process for virtual asset trading platforms.' This indicates that in the future, whether for virtual asset trading platforms or other licenses related to virtual assets, the application process may be further simplified and the timeline shortened.
Why did the Hong Kong Securities and Futures Commission suddenly accelerate the licensing process? Here are a few reasons:
1. The rapid development of the global virtual asset market
Recently, the global virtual asset market has shown rapid growth, particularly with the consecutive approvals of Bitcoin spot ETFs and the increasing entry of traditional financial institutions into the crypto field, driving the industry's heat. This necessitates Hong Kong to accelerate the issuance of licenses to seize market opportunities and attract more investors and companies to operate in Hong Kong.
2. Regional competitive pressure
In recent years, places like Singapore and Dubai have frequently updated their regulatory frameworks in the virtual asset and Web3 fields, competing to attract global blockchain companies and investors. As one of Asia's financial centers, Hong Kong needs to demonstrate its support for innovative finance by accelerating licensing to maintain competitiveness.
3. The trend of mainland Chinese capital laying out Web3
From the background of the newly licensed institutions, many parent companies or major investors come from mainland China. This indicates that mainland enterprises are laying out Web3 through Hong Kong. By rapidly issuing licenses, Hong Kong aligns with this trend, reinforcing its role as a bridgehead for mainland capital to expand outward.
Overall, the Hong Kong Securities and Futures Commission's acceleration of licensing is driven not only by market demand but also by a proactive strategic choice aimed at laying a more solid foundation for the development of Hong Kong's virtual asset industry while strengthening its status as a global virtual asset center.
The impact of Hong Kong's accelerated licensing on various parties
1. For the overall industry
The increase in licensed virtual asset trading platforms is undoubtedly good news for both the development of Hong Kong's Web3 industry and the global virtual asset market. First, the new licensed institutions will increase market competition, forcing each platform to reduce costs and improve efficiency and service quality. Secondly, more platforms entering the regulatory system will help enhance industry transparency and market confidence. Finally, by introducing more licensed platforms, Hong Kong consolidates its position as an international hub for virtual assets.
2. For licensed institutions
The addition of licenses may weaken the advantages of existing licensed institutions. Licenses are, on one hand, an official endorsement of virtual asset trading platforms, and on the other hand, a threshold and restriction on unlicensed institutions.
Under the premise that licensed platforms do not expand, virtual asset trading platforms that obtain licenses earlier can achieve an almost monopolistic market position, gaining a competitive edge. However, with the increase in the number of licensed platforms, in the short term, this will weaken the advantage of early licensed platforms. But in the long run, whether early or late licensed institutions, a fully competitive market environment will force all major platforms to reduce costs and improve efficiency, lowering transaction fees and enhancing service quality, benefiting Hong Kong virtual asset trading platforms in gaining further international competitiveness.
3. For traders
For many virtual asset traders, the increase in licensed exchanges is undoubtedly a positive development. This means that trading fees may further decrease, trading efficiency may improve, and traders will have more options for trading platforms. By diversifying trading or investments, they can effectively hedge against the internal and external risks associated with centralized virtual asset platforms.
4. For Web3 practitioners
First, the Hong Kong government has demonstrated its determination to support the development of the Web3 industry through concrete actions, enhancing the confidence of practitioners. Secondly, with the increase in licensed institutions and the improvement of the market ecosystem, more innovative projects and business models will have the opportunity to be implemented in Hong Kong.
Overall, this licensing will have an immediate impact on the market landscape in the short term, but in the long run, it will enhance Hong Kong's attractiveness and status in the global virtual asset market through strengthened competition and improved regulation, creating more opportunities and value for all parties.
Summary by Mankun Lawyers
The rapid issuance of virtual asset trading platform licenses by the Hong Kong Securities and Futures Commission not only demonstrates its determination to build an Asian Web3 hub but also injects new momentum into the market. The newly licensed institutions will promote cost reduction and efficiency enhancement in the industry through intense market competition, driving service optimization and providing investors with more options, thereby enhancing the international influence of Hong Kong's virtual asset industry.
In this context, we also observe that mainland Chinese enterprises are gradually turning their attention to the Web3 field, using Hong Kong as a bridgehead for globalization. This not only reflects mainland capital's recognition of Web3 but also showcases Hong Kong's strategic position as a hub for virtual asset development.
Mankun Lawyers, as a professional legal service provider in the Web3 field, will continue to dedicate itself to providing comprehensive support for virtual asset trading platforms and Web3 entrepreneurs.
The wave of Web3 has already arrived, and Hong Kong is welcoming a new round of industry opportunities. Mankun Lawyers looks forward to partnering with more industry partners to jointly promote the prosperous development of the Web3 ecosystem and help clients gain a market advantage based on compliance.