Today, many global crypto exchanges will be obliged to leave Hong Kong. While the country promotes the industry's development, it has introduced strict registration requirements for market participants and exchanges in particular.

The activity of crypto exchanges fell under the jurisdiction of Hong Kong's Securities and Futures Commission (SFC) following the regulations that came into force in June 2023. All virtual asset trading platform operators (VATPs) working in Hong Kong were obliged to apply for the SFC license by February 29. Failure to do so meant a company must close down its local businesses by May 31.

Around 20 exchanges, mainly of local origin, have applied for the license. The latest to apply was Bitcoin World Technology Ltd., a Hong Kong-based exchange founded in 2023. Only two local exchanges, OSL and HashKey, obtained their Hong Kong VATP licenses in 2020 and 2022, respectively. The HashKey exchange handles around $28.6 million daily trading volume, while OSL data is untracked on CoinMarketCap.

The world’s leading players, which in the past launched dedicated Hong Kong products and promised to remain compliant, are either not interested in the market anymore or need time to bring their activities in compliance with the actual regulator requirements. Only two exchanges of a global scale remain on the list: Bybit (which is also on the SFC Alert List as a suspicious platform) and

In total, six exchanges have decided to exit the licensing process within the last two months. Gate.HK, launched in the previous year by Gate Group, the company behind the crypto exchange, withdrew its application on May 22, promising to undergo a "major overhaul" and then resume its business in Hong Kong.

OKX announced on May 24 that “after careful consideration of its business strategy,” the Hong Kong branch withdrew its VATP license application.

Four other exchanges — Huobi HK, QuanXLab, VAEX, and IBTCEX — withdrew their license applications earlier this month. Some suggested that applicants might have been directly instructed by the SFC to withdraw or had come to understand that they wouldn't meet the requirements.

One of the major reasons discussed in the community might be the continued prevention of Mainland Chinese residents from accessing their services. Hong Kong has not yet provided an opportunity to circumvent the China ban on crypto trading, a salient point the SFC reminded all the applicants of last week. The People’s Bank of China issued a warning in 2021 that offering cryptocurrency services to people in mainland China would be a violation of the law.

The agency's commitment to clear the field was demonstrated during the recent JPEX scandal last September. Back then, the SFC promised to spread transparent and full information on the topic and begin investor education. The authority also announced the publication of a special alert list and the lists of VATPs at different stages of licensing, urging local users to refrain from any operations via unlicensed entities. 

The lists of approved and deemed-to-be licensed exchanges are expected to be updated within the next few days. In the coming months, while the VATPs will pursue their applications, the SFC promised to conduct on-site inspections to ascertain their compliance, focusing particularly on safeguarding of client assets and KYC processes.

Hong Kong is home to many promising crypto projects and the digital assets market in the country is projected to grow further. The recent approval of spot Bitcoin and Ethereum ETFs is another proof of the country's advanced stance on innovations in trading and technology. However, by removing its role as a proxy to Mainland China, Hong Kong risks limiting its investor appeal.

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