Hong Kong's Crypto Regulatory Regime in Flux as VATP Applicants Pull Out

In a move that could cast doubt on Hong Kong's ambitions to become a global crypto hub, more Virtual Asset Trading Platform (VATP) applicants have withdrawn their applications for licenses to operate in the city.

This follows the news of three crypto exchanges, Gate.HK, OKX, and Huobi, withdrawing their applications earlier. Now, SCMP is reporting that the local affiliates of KuCoin, Binance and HTX have also withdrawn their applications, bringing the total number of withdrawals to 10 from 28 applicants.

Gate.HK, OKX, Huobi: Hong Kong is Losing Crypto Exchanges

Gate.HK, OKX, and Huobi have al pulled their applications for virtual-asset trading platform licenses (VATP) in Hong Kong

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The withdrawals come as the Securities and Futures Commission (SFC) circulated a notice saying that crypto exchanges should not serve clients on the mainland. The agency also said that it would conduct on-site inspections of VATPs starting from June 1st. The SFC emphasized that while these deemed-to-be-licensed VATPs have committed to complying with regulations, they still need to demonstrate to the SFC's satisfaction that they have implemented these measures effectively.

The SFC has warned that any non-compliance with key regulatory requirements for investor protection in particular would lead to a swift refusal of the pending license application. The deadline for applying for securing a license is August 2024. Those failing to do so will be shown the door, and forced to cease operations in the territory.

The reasons for the VATP applicants' withdrawals are not entirely clear. Some speculate that the exchanges are withdrawing due to the perceived difficulty of obtaining a license under the SFC's strict regulatory regime. Others believe that the exchanges may be planning to return to Hong Kong in the future, once they have had more time to comply with the new regulations.

It remains to be seen how many of the remaining 18 VATP applicants will ultimately be granted licenses. The SFC's upcoming inspections and the looming deadline for applications are likely to have a significant impact on the future of Hong Kong's crypto industry.

Currently, only HashKey Exchange and OSL hold a license to serve retail customers in the city.