It has been a year since Hong Kong officially implemented the licensing system for virtual asset trading platforms (VATP) in June last year. On June 1, the one-year licensing transition period ended, and the regulatory agency, the Securities and Futures Commission of Hong Kong (SFC), immediately announced the updated VATP list.
It is worth noting that the SFC regards 11 platforms as "licensed" applicants, which means that although these platforms have not yet officially obtained licenses, they are considered to be about to complete the licensing process. These 11 platforms include HKbitEX, PantherTrade, Accumulus, DFX Labs, Bixin.com, xWhale, YAX, Bullish, Crypto.com, WhaleFin and Matrixport HK.
The SFC said that these "deemed licensed" applicants still need to prove the actual implementation and effectiveness of their compliance measures before they can finally obtain a formal license. In addition, six platforms were not deemed to have been licensed and must end all their operations in Hong Kong within three months.
It is worth mentioning that since the VATP licensing system in Hong Kong was officially implemented on June 1, 2023, the industry has been paying close attention to the application cost issue. According to previous reports, the market expected the application cost of the Hong Kong VATP license to be as high as millions of US dollars, far exceeding the application fees under other regulatory systems. However, the latest official news shows that the VATP application cost is indeed lower than expected.
Although the application cost of a cryptocurrency exchange license in Hong Kong has been reduced compared to previous expectations and is not as high as expected, it is still not cheap. Industry insiders revealed that the cost for a medium-sized cryptocurrency exchange to obtain a regulatory license in Hong Kong is about 5 million to 8 million Hong Kong dollars (about 635,000 to 1.02 million US dollars). This is just the application fee, and the exchange will need to invest a lot of money in subsequent compliance and operations. This is undoubtedly a considerable burden for many small and medium-sized exchanges.
Moreover, industry insiders generally believe that Hong Kong's regulatory requirements are "too strict." Hong Kong Legislative Council member Qiu Dagen expressed his views on June 1, saying that the SFC's compliance requirements for platforms are too stringent, including regulations on asset custody, avoiding conflicts of interest, network security, accounting and auditing, which has led to the reluctance of large global exchanges to enter Hong Kong, which has weakened the market's confidence in Hong Kong's development of Web3.
Mr. Yau also pointed out that some exchanges have chosen to withdraw their applications after obtaining a license, such as OKX and Huobi HK. Industry insiders analyzed that this is because the liquidity and number of tradable currencies on Hong Kong platforms are not as good as those overseas, and factors such as compliance costs have greatly reduced the attractiveness of obtaining a Hong Kong license.
In addition, some analysts believe that even for the 11 platforms that are considered to have been licensed, there is still uncertainty as to whether they can successfully obtain formal licenses. After all, the CSRC requires them to further prove the actual implementation and effectiveness of compliance measures, which undoubtedly increases the operational pressure on the exchanges.
Throughout the licensing system, the government and regulators’ goal is to create a compliant and secure cryptocurrency trading ecosystem. However, from the current situation, exchanges generally believe that the supervision is too strong, which has affected Hong Kong’s competitiveness in attracting global crypto companies to develop and invest.
Industry insiders call on regulators to relax some regulations and allow more flexibility while ensuring compliance, so as to better balance the relationship between regulation and industry development. After all, Hong Kong undoubtedly still has a long way to go in promoting the "new track" of Web3 development.
In fact, when formulating the VATP licensing system, the Hong Kong authorities are undoubtedly trying to balance efficiency, innovation and risk control. On the one hand, overly loose regulation may lead to systemic risks; on the other hand, overly strict requirements may hinder the development of the industry.
This kind of contradiction and trade-off is common in all countries when regulating the virtual asset industry. Some developed countries, such as Singapore, have experienced similar difficulties in the past and eventually found a moderate regulatory balance. However, in the case of Hong Kong, it seems that the industry's demand for greater development space has not been fully met.
There are signs that the regulatory environment for cryptocurrency in Hong Kong is still full of uncertainty. Although some well-known exchanges have given up applying for licenses in Hong Kong, some platforms still choose to continue to "take a gamble". For the entire cryptocurrency industry, the direction of Hong Kong's regulation will also affect its position in Asia and even the world. After all, if even well-known exchanges lose confidence in Hong Kong's regulatory environment, Hong Kong's dream of becoming a digital asset trading center in the region may be difficult to achieve.
Overall, the initial implementation of Hong Kong's VATP licensing system has been relatively positive, with the first 11 platforms deemed approved and costs lower than expected. However, stricter regulatory requirements may affect the confidence of industry participants in the future development of Web3 in Hong Kong.
The Hong Kong authorities need to seek a better balance between compliance and industry development, and adjust regulatory policies appropriately to ensure financial security while meeting the industry's demands for innovation and space. Only in this way can Hong Kong truly become an international hub for the virtual asset industry and inject new vitality into its status as a financial center.