Author: An Shouzheng Legal Services Co., Ltd.
Several platforms withdraw applications for Hong Kong licenses
On May 26, Ming Pao reported that the licensing transition period for Hong Kong’s virtual asset service providers (VASPs) will end at the end of this month, and the Securities and Futures Commission will decide whether existing service providers can continue to operate. Recently, many platforms including OKX and VAEX have withdrawn their license applications (see the figure below for the specific list) due to the high compliance costs in Hong Kong and the low attractiveness of the local market. Industry insiders believe that the liquidity and trading currencies of Hong Kong platforms are not as good as those overseas, and the stricter regulatory conditions are the reasons for the platforms to withdraw their license applications.
Currently, only two platforms have been licensed by the Securities and Futures Commission, and 18 are in the process of applying. Industry insiders recommend strengthening the tokenization of virtual assets in real-world applications to improve market acceptance and practical use. Regardless of the background of these organizations that have withdrawn their applications, let us take a look at the situation of the companies that have obtained licenses.
1. OSL
It is the first platform in Hong Kong to obtain a license, backed by three financial sponsors: BC Technology, Fidelity of the United States, and GIC of Singapore.
OSL was founded in 2018. At that time, the Hong Kong-listed company "Brand China" established a digital asset trading platform OSL. In 2019, the company was renamed "BC Technology (http://00863.HK)". In December 2020, OSL obtained the Hong Kong Securities Regulatory Commission The No. 1 securities trading license and the No. 7 automated trading license issued by the Association provide digital asset trading services to professional investors in the Asia-Pacific region. In the following years, OSL was also awarded virtual asset licenses 4&9. Its current business includes SAAS, brokerage, exchange and custody services, serving professional institutional and retail investors. On August 3, 2023, OSL parent company Hong Kong Stock BC Technology announced that the company's wholly-owned subsidiary OSL has been approved by the Hong Kong Securities Regulatory Commission to upgrade its existing license and will officially provide retail investors with mainstream currencies such as Bitcoin and Ethereum from now on. Digital asset trading services.
2. Hashkey
The founder of Hashkey is Xiao Feng, who gave great support to Ethereum when it entered China in the early years. He is also known as the leader of Ethereum in China. In the past few years, its main body, Wanxiang Group, was also very well-known in China. CEO Deng Chao was an early member of the original Wanxiang, and COO Weng Xiaoqi also served as the global CEO of Huobi Li Lin Era. The business includes exchanges, securities brokerage, venture capital, Web3 infrastructure services and technology services, serving institutions, family offices, funds and professional qualified investors respectively. Hashkey Exchange business is a "one-stop" service.
3. HKVAX
The three co-founders of HKVAX are CEO Wu Weiliang, COO Fok Zhaoliang and CTO Liu Cheng. The first two are local practitioners in Hong Kong, and the CTO comes from the Internet giant Ant Financial. HKVAX CEO Ng Wai-leung and COO Fok Siu-leung were respectively the CEO and compliance director of CoinSuper Premium, a crypto-asset trading platform owned by Hong Kong’s traditional financial group Vanguard Group. Before CoinSuper, CEO Wu Weiliang worked with top financial institutions including Morgan Stanley, JPMorgan Chase and Wanfang Asset Management, and served as the managing director of CITIC Futures International. COO Fok Siu-leung focuses on compliance and leading license applications. He was the head of anti-money laundering compliance for HSBC Global Private Banking and Private Wealth Solutions in Hong Kong and Asia. CTO Liu Cheng has worked for Alibaba and Ant Financial. He also has extensive experience in financial product management and the research and development of complex systems. He graduated from the University of Electronic Science and Technology of China.
4. VDX
The full name is Victory Fintech Limited (Victory Digital Technology).
It is a joint-stock subsidiary of Victory Securities, a local securities company in Hong Kong. VDX’s main business is a virtual asset trading platform (VATP license application is pending), while Victory Securities’ main business in the virtual asset industry is virtual asset brokerage business, and has been awarded the virtual asset No. 1, securities brokerage business.
5. HKbitEX
HKbitEX is one of the three major business sectors of Tykhe Capital Group. According to the official introduction, Taiji Capital’s business is centered on tokenized assets, including three major sectors: capital markets and wealth management, virtual asset exchanges, and Web3 SaaS and technology research and development. Related businesses are regulated or compliant through group subsidiaries. Web3 infrastructure support.
6. HK BGE
It is a wholly-owned subsidiary of Hong Kong listed company HKE Holdings (01726). HKE Holdings was listed on the Hong Kong stock market on April 18, 2018, with a current market capitalization of HK$2.289 billion. Its main business is to provide comprehensive design and construction services for hospitals and clinics in Singapore. Starting from May 2021, HKE Holdings’ business cross-border involvement is Establish a comprehensive financial technology service platform for multiple types of assets (including but not limited to virtual assets, listed securities, listed bonds and alternative assets).
The arrogance of Hong Kong’s traditional finance can be seen from the above list of licensees. No matter how many users you have, no matter how influential you are, no matter how big your platform is, the Hong Kong Securities Regulatory Commission only looks at whether your connections are strong enough. If you don’t have a connection, I won’t issue you a license. Even these exchanges that obtained licenses at the same time did not even have a user base.
Hong Kong Securities Commission speaks out
On May 28, the Hong Kong Securities and Futures Commission issued a statement on the end of the non-violation period for virtual asset trading platforms. The Securities and Futures Commission of Hong Kong would like to remind the public that the non-violation period applicable to virtual asset trading platforms operating in Hong Kong under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615) (Anti-Money Laundering Ordinance) will expire in 2024 Ends June 1st. All virtual asset trading platforms operating in Hong Kong must be licensed by the Securities and Futures Commission of Hong Kong under the Anti-Money Laundering Ordinance, or be "deemed to be licensed" virtual asset trading platform applicants. Operating a virtual asset trading platform in Hong Kong in violation of the Anti-Money Laundering Ordinance is a criminal offense and the SFC will take all appropriate actions against any illegal conduct.
The SFC urges investors to only buy and sell virtual assets on virtual asset trading platforms licensed by the SFC, and to check the "List of Licensed Virtual Asset Trading Platforms" on the SFC website to determine the virtual asset trading platforms they use. Whether the asset trading platform has been officially licensed by the Hong Kong Securities and Futures Commission.
In addition, investors should note that applicants for virtual asset trading platforms that are deemed to be licensed have not been officially licensed by the Hong Kong Securities and Futures Commission. These applicants were already operating in Hong Kong before the implementation of the new virtual asset trading platform licensing regime under the Anti-Money Laundering Ordinance. Although they have committed to strengthening their policies, procedures, systems and control measures to comply with the regulatory requirements of the Hong Kong Securities and Futures Commission, they still need to demonstrate the actual implementation and effectiveness of these measures to the satisfaction of the Hong Kong Securities and Futures Commission.
For applicants deemed to be licensed virtual asset trading platforms, the Securities and Futures Commission of Hong Kong reminds that applicants (and their ultimate owners) deemed to be licensed virtual asset trading platforms must fully comply with all regulatory requirements of the Commission. and licensing conditions. The SFC does not expect these applicants to actively promote their services or establish business with new retail customers until they are satisfied with the actual implementation and effectiveness of their policies, procedures, systems and control measures and are officially licensed. relation.
The Hong Kong Securities and Futures Commission also reminds all virtual asset trading platforms and their ultimate owners to comply with all applicable laws and regulations, including but not limited to preventing residents of mainland China from using any of their virtual asset-related services, and to take all necessary measures to facilitate the use of these virtual asset-related services. The controlling entities and related parties of the asset trading platform comply with all applicable laws and regulations.
The licensing arrangements aim to strike a balance between protecting investors and promoting market development. Therefore, the arrangement is only temporary and if any breach of the key regulatory requirements on investor protection is found, the SFC will promptly reject the license application of the applicant deemed to be licensed.
In the coming months, while applicants for virtual asset trading platforms deemed to be licensed continue their applications, the SFC will conduct on-site inspections to determine whether they have complied with the Commission’s regulatory requirements and will pay special attention to their Client asset protection and know-your-client procedures. The Hong Kong Securities and Futures Commission’s move aims to protect the interests of investors, and the results of the inspection will affect the license application process. Likewise, if any breach of key regulatory requirements regarding investor protection is discovered during an inspection, the SFC will promptly reject the relevant license application and take other regulatory actions as appropriate.
On May 29, Hong Kong media Wen Wei Po revealed that the Hong Kong government will maintain close communication with the Securities and Futures Commission to allow the Securities and Futures Commission to process applications for all platforms as soon as possible, so that citizens and investors can have more secure investment options. Looking forward, Hong Kong will further improve its regulatory framework, including regulating virtual asset over-the-counter trading service providers, to build a stable ecosystem for the virtual asset industry and promote its responsible and sustainable development.
The Hong Kong SFC emphasizes that although those virtual asset trading platforms deemed to be licensed have committed to strengthening their policies, procedures, systems and control measures to comply with the SFC’s regulatory requirements, they still need to demonstrate the actual implementation of these measures. and the results can be satisfied by the Securities and Futures Commission of Hong Kong. Before these platforms are officially licensed, the China Securities Regulatory Commission does not expect them to actively promote their services or establish business relationships with new retail customers.
Hong Kong crypto market, where is the future?
Strictly speaking, Hong Kong does not recognize exchanges run by mainland bosses. This is actually the result of a multi-party struggle.
The Hong Kong government has its own considerations. The reason why they have been slow to issue licenses to mainland exchanges is not at all due to size, safety, professionalism, etc., but more from an uncontrollable perspective. For example, although the amount of funds is large, and although there are Merkel trees and asset certificates, these funds are not under the supervision of the Hong Kong government. The Hong Kong government cannot accept the existence of an exchange that holds its own license but is outside the scope of supervision, and it is even less possible for the Hong Kong government to endorse such an exchange by betting on its credibility.
Although various exchanges have made certain concessions in this regard and shown strong sincerity, in the minds of various bosses, they are the same as Spike: sincerity is sincerity, and the bottom line is the bottom line. If you have to pay a cost that is much higher than the size of the Hong Kong market in order to show sincerity, then the deal is obviously not cost-effective. Another example is the system black box problem. Although each exchange can disclose and even access some data to the Hong Kong government, compared to the whole, the Hong Kong government’s data on each exchange is still in a black box state. All the data that the Hong Kong government can see is It is the data that the exchange wants them to see, or even the data that is produced.
Another example is the issue of past non-compliance. No matter which one of the mainstream exchanges, there is a platform currency issued. Does the issuance of platform currency count as the issuance of securities? Is there any compliance issue? After the Hong Kong government grants the license, will the platform be shut down by other regions due to similar compliance issues, which will lead to the Hong Kong government’s Also affected is currently unknown.
One of the most critical points is actually in the United States. Suppose now that the Hong Kong government gives these exchanges compliant licenses, but in the end the United States imposes sanctions, just like what happened with cz this year. Then the Hong Kong government will be very embarrassed, because the essence of Hong Kong's finance is that it is a vassal of Wall Street.
Therefore, until the United States does not relent, it will be difficult for the Hong Kong government to open its mouth on this matter. If you want to open your mouth, you must provide enough attractive conditions. For local exchanges in Hong Kong, there are no such series of external constraints. The above are some of the reasons why the current situation has occurred from the perspective of the Hong Kong government.
Has Hong Kong license plate become a hot potato?
With the withdrawal of the Chinese bosses, the ball has been kicked back to the feet of the Hong Kong government and local forces, but this ball is a bit hot. For local forces, this is really a hot potato. I originally thought that I could make a lot of money with the license, but I didn't expect that it was a stone's throw.
Obtaining a Hong Kong license does not mean that you can do exchanges around the world. It only means that you can open it to Hong Kong users. Even though Hong Kong is Chinese, you do not have the authority to open it to mainland users - because the exchange business is in Mainland China is not compliant. In Hong Kong as a whole, there are only 7.5 million people.
Therefore, it seems that the only way for local forces to take action is to take action, and what is even more uncomfortable is the Hong Kong government. When the Hong Kong government announced that it would conduct compliance supervision on cryptocurrency two years ago, the market enthusiasm was actually extremely high. However, due to the inability to let go and some mysterious operations, it has completely lost its popularity and cannot afford to turn it over no matter what. spray. This matter seems big, but in fact the market is very small - because in the entire crypto market, those who have demand for Hong Kong licenses are these potential buyers.
Not everyone can do this thing called exchange. It is necessary to go through the baptism and consensus of the market before it is necessary to apply for a license. Only those who can fight through thousands of troops and have a certain business volume need to apply. Counting over and over again, I can count them with both hands. But now these people, not only do not continue to apply, but they actively withdraw their applications. How embarrassed is this for the Hong Kong government?
And what's even worse is that local forces are starting to stab them in the back. Assuming that one of these six companies has officially sold its license (accepting shares, selling shells, etc.), then the other companies will definitely follow suit, because it is really difficult to operate an exchange. If this is the case, the licenses issued by the Hong Kong government will become a tool to carry the sedan chair for the local forces. After holding back the big move for three years, it finally became lonely.
I used to have a good hand, but now I am playing badly (refer to Encrypted Intelligence Orange for some of the above information).
Unexpectedly, in the encryption market, the Chinese boss used the wisdom of socialism to teach decadent capitalism a lesson.
