Challenges Faced by Cryptocurrency Exchanges in Hong Kong

A recent development in the global cryptocurrency market has seen several international exchanges retract their applications for licenses in Hong Kong. The decision to withdraw these license requests has brought attention to the shortcomings in the city's licensing system, as noted by Chiu, a member of Hong Kong's Legislative Council.

Expressing dissatisfaction with the stringent licensing requirements imposed on cryptocurrency exchanges, Chiu highlighted how these regulations have deterred leading international exchanges from establishing offices in Hong Kong, ultimately leading to a decline in investor confidence.

In a commentary featured in the Hong Kong Economic Journal, Chiu emphasized the diminishing trust among market participants in Hong Kong's endeavors to embrace Web3 technology, particularly in light of the growing number of withdrawals of license applications by prominent global crypto exchanges.

Ongoing Challenges

Compounding the situation, cryptocurrency exchanges that fail to submit license applications by February 29th have been instructed by the Securities and Futures Commission to exit Hong Kong by May 31st. Effective June 1st, all Virtual Asset Trading Platforms (VATPs) operating in Hong Kong must hold either a 'deemed-to-be-licensed' status or a valid SFC license.

Consequently, several well-known international exchanges, including OKX, Gate.io, and HTX, have opted to retract their requests for licenses in Hong Kong. The withdrawal of these applications, according to Chiu, has underscored significant deficiencies in the existing licensing framework.

Chiu pointed out a fragmentation in regulatory responsibilities across various departments in Hong Kong concerning the development of the virtual asset market. He noted the absence of a comprehensive strategic vision for the industry as a whole.

Furthermore, some license applicants have raised concerns to Chiu, stating that regulatory authorities have not adequately planned for the evolution of next-generation fintech. They have critiqued the conventional financial perspective from which Web3 is being marketed, emphasizing the limitations in adaptability.

In the context of Web3, Chiu criticized the excessively stringent standards imposed by the SFC, likening them to those applied to traditional financial institutions.

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