Major cryptocurrency exchanges including OKEx, Zhima, KuCoin, Binance and Huobi are withdrawing their applications for Hong Kong licenses as stringent regulatory requirements and the inability to serve mainland investors are forcing most of the world's cryptocurrency exchanges out of Hong Kong. A year ago, several large companies set up shop in Hong Kong ahead of new regulations that aim to transform Hong Kong into a virtual asset hub, but eventually withdrew their license applications.

According to the website of the Hong Kong Securities and Futures Commission (SFC), local branches of major cryptocurrency exchanges including OKX, Gate.io, Binance and HTX (formerly Huobi) have withdrawn their applications for Hong Kong Virtual Asset Trading Platform (VATP) licenses submitted in the past few months. The companies, which were originally established locally and now have global operations, have shown interest in Hong Kong's new virtual asset regulatory regime that came into effect in June last year, which requires exchanges to obtain licenses in Hong Kong. Those with existing operations have been given a one-year grace period, but those that withdrew their applications must now close their Hong Kong operations.

The SFC's strict requirements appear to have been one of the reasons for the companies' withdrawal, with seven of the original 24 applicants having withdrawn so far. However, the inability to serve mainland customers may be another major reason. In a notice, the Hong Kong Securities and Futures Commission reminded exchange operators that they must be "deemed to be licensed" by June 1 to continue operating in Hong Kong, and said virtual asset trading platforms must "comply with all applicable laws and regulations, including... preventing mainland residents from accessing any of their virtual asset-related services."

The regulations on mainland investors were included in the list of requirements sent directly to applicants, which has dampened companies' enthusiasm for doing business in Hong Kong, according to an industry insider familiar with the matter. The person declined to be named because the discussions are private. In 2021, the People's Bank of China warned that it would be a violation of the law to provide cryptocurrency services to mainland people. Cryptocurrency investors who have managed to find workarounds remain important for many exchanges that have moved overseas. Angela Ang, senior policy adviser at blockchain research firm TRM Labs, said other license applicants may have been directly instructed to withdraw by the Hong Kong Securities and Futures Commission.