Four new members join Hong Kong's virtual asset exchanges, a brief overview of each background and the latest regulatory roadmap

Author PANEWS

After OSL Exchange, HashKeyExchange, and HKVAX, Hong Kong's licensed Virtual Asset Trading Platforms (VATP) welcome four new members. On December 18, the Hong Kong Securities and Futures Commission (SFC) announced the issuance of licenses to four virtual asset trading platforms under a fast-track licensing process, including Cloud Account Greater Bay Area Technology (Hong Kong), DFX Labs, Hong Kong Digital Asset Trading Group, and Thousand Whales Technology. Meanwhile, the SFC is accelerating the approval process for virtual asset licenses and developing a clear roadmap for the licensing procedure to further expand Hong Kong's footprint in the Web3 space.Four platforms licensed by the Hong Kong SFC
This time, the Hong Kong SFC has approved four platforms at once, increasing the number of licensed virtual asset trading platforms in Hong Kong to seven. HKbitEX: launched by former Hong Kong Stock Exchange officials, it has secured tens of millions of dollars in funding. HKbitEX, launched by Hong Kong Digital Asset Trading Group Limited, was established in 2019 and aims to provide 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 Hong Kong Digital Asset Trading Group is Taiji Capital Group, which mainly provides tokenized asset services, including 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), with tokens issued by its subsidiary Vanguard Asset Management's closed-end fund PRINCE, aiming to raise approximately HKD 100 million at that time. Taiji Capital's founder, Gao Han, previously worked for the Hong Kong Stock Exchange, mainly responsible for promoting Hong Kong Stock Exchange products in mainland China, including Stock Connect and Bond Connect, and has attracted several senior executives from the Hong Kong Stock Exchange to join. As one of the first institutions to apply for a virtual asset trading platform license from the Hong Kong SFC, HKbitEX has gone through multiple rounds of financing, including in December 20220, HKbitEX announced the completion of a USD 10 million A2 round of financing, led by Hong Kong listed company Anling International's subsidiary Axion Global Investment Limited and Hanwha Asset Management, with other investors including De Ding Innovation Fund, Jianfeng Capital Management, Lenovo Ventures, and Lingfeng Capital; in November 2021, HKbitEX announced the completion of a USD 9 million Pre-B round financing for 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 withdrawn during the licensing transition period. By June, only 11 platforms were recognized as license applicants, and the challenges that Hong Kong faces should not be overlooked. To enhance approval efficiency and ensure compliance, Hong Kong launched an inspection program in June this year, completing relevant on-site inspections for all licensed applicants, which yielded direct results. Therefore, the Hong Kong SFC decided to continue this practice during the second phase of assessments, when external evaluation experts are appointed for virtual asset trading platforms. 'We have always been proactive in communicating with the senior management and ultimate controllers of virtual asset trading platforms, which helps us clarify the regulatory standards to be achieved and accelerate the regulatory standards for virtual asset trading platforms,' said Ye Zhiheng, Executive Director of the Intermediary Institutions Department of the Hong Kong SFC. In the latest circular, the Hong Kong SFC also established a clear roadmap for the licensing procedure for virtual asset trading platforms: 1. On-site inspections, provide feedback, and require platforms to submit corrective action plans. 2. After a consensus on the corrective plan is reached, a conditional license will be issued, and the platform must proceed to implement corrective measures and conduct penetration testing and vulnerability assessments to obtain satisfactory results before operating within a restricted business scope; 3. Penetration testing and vulnerability assessments must be conducted by independent third parties, and the platform's management must ensure the continued implementation of all significant and critical corrective measures. 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 revised policies and procedures (including revised procedures and monitoring), and the SFC will oversee the entire second phase evaluation process, clarifying regulatory requirements and providing feedback on evaluation results. 6. The SFC will revoke the licensing conditions related to the restricted business scope after the second phase evaluation is completed, and this phase of 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 no easy task as it is a vast existing market, technologically advanced, borderless, and with regulations not yet fully developed. The Hong Kong SFC will establish a formal advisory group for all licensed platforms in early 2025, with each licensed institution delegating senior personnel as representatives. This will allow the Hong Kong SFC to fully listen to and consider their views, enabling us to brainstorm and systematically prioritize development matters based on investor protection,' Ye Zhiheng previously revealed. The Hong Kong SFC has also disclosed that it will provide more guidance on the licensing scheme for new entities applying for a second virtual asset trading platform license in early 2025.