1. Compliance Shortcomings
2. Hong Kong’s Push for a Regulated Crypto Market
3. Impact of New Products on Crypto Firms

Hong Kong's Securities and Futures Commission (SFC) has identified various shortcomings among crypto firms seeking full licenses. These findings emerged as the SFC intensified its scrutiny of virtual asset trading platforms under its new regulatory framework, which came into effect in 2024.

Compliance Shortcomings

The SFC recently revealed that some crypto entities had failed to meet the regulatory standards required for a full license. Key issues included inadequate risk management, lack of internal controls, and insufficient measures to prevent market manipulation. Crypto platforms are expected to adopt comprehensive internal controls to safeguard investor interests and maintain market integrity.

Hong Kong’s Push for a Regulated Crypto Market

The SFC also emphasized that platforms must establish solid procedures to monitor and prevent money laundering and other illicit activities. Failure to comply could lead to delays in obtaining a full license or even result in enforcement actions. Several firms have struggled to implement these controls effectively. Additionally, there have been instances where platforms lacked transparency in their trading operations, which could facilitate market manipulation.

Impact of New Products on Crypto Firms

These findings come as Hong Kong positions itself as a leading crypto hub in Asia. However, the city’s regulatory body has made it clear that only firms meeting its stringent standards will be allowed to operate. The approval of spot Bitcoin and Ether ETFs in Hong Kong has put additional pressure on crypto platforms. These financial products demand a higher level of regulatory compliance and risk management, further raising the bar for firms seeking licenses. Analysts believe this could lead to a “fee war” as firms compete for market share under the new regulations. As the SFC continues its oversight, crypto firms in Hong Kong face a challenging road ahead. They must adapt quickly to meet the regulator’s standards or risk being left behind in the competitive digital asset landscape.

Hong Kong is solidifying its position as a key crypto hub in Asia, but only firms that can meet the stringent regulatory requirements will survive and thrive. Elevated standards require crypto firms to make significant efforts in risk management and anti-money laundering measures to match the regulator's expectations.