High Costs Accompany Hong Kong’s Crypto Regulation Efforts

High Costs Accompany Hong Kong's Crypto Regulation Efforts

Hong Kong’s eagerly anticipated regulations for cryptocurrencies have finally taken effect, marking the beginning of a new era in virtual asset oversight.

These rules, which were finalized last week, have been hailed as one of the most stringent regulatory frameworks for centralized crypto exchanges globally.

As Hong Kong embraces the volatile digital asset sector after last year’s events, experts note that these regulations are placing a significant burden on exchanges. Nevertheless, businesses in the city remain undeterred, continuing their operations with optimism.

A Look at the Immediate Regulatory Measures

Starting this month, cryptocurrency exchanges are required to obtain a license from the Securities and Futures Commission in order to sell and market their services to consumers in Hong Kong.

The SFC is now processing license applications, and exchanges already established in the city have a one-year window to continue operating while they work towards compliance or consider exiting the market.

Despite the substantial compliance obligations, there is a notable lack of deterrence for crypto firms seeking to establish a presence in Hong Kong.

Joy Lam, a partner at law firm Baker McKenzie in Hong Kong, remarked, that they have received requests from both existing and new market players who are eager to become licensed in Hong Kong.

Centralized exchanges opting to remain in operation must adhere to an extensive array of obligations that span various aspects such as user registration, cybersecurity, corporate governance, and safeguarding assets.

Additionally, they are mandated to conduct thorough evaluations of the crypto tokens they list, selecting only those with substantial market capitalization and ample liquidity as outlined by the SFC.

In a recent post published on Tuesday, legal experts from Latham & Watkins emphasized the demanding nature of these requirements. They stated that establishing a trading platform that meets these criteria will require meticulous planning and significant investment.

It is crucial for exchanges to allocate resources to ensure their trading platforms are capable of satisfying these stringent criteria.

More and More Businesses are Keen on Web 3

During an event in March, Christopher Hui, the secretary for financial services and the treasury in Hong Kong, disclosed that over 80 companies, originating from mainland China and various other countries, had displayed keen interest in establishing Web3 businesses in the city.

Among the prominent applicants seeking licenses to operate in Hong Kong are Huobi and OKX, two of the world’s largest cryptocurrency exchanges that originated in mainland China.

While focusing on aligning with the new regulations, these companies have already commenced onboarding retail users within the city.

The participation of such influential exchanges highlights Hong Kong’s appeal as a destination for crypto-related ventures, attracting both domestic and international companies eager to tap into the emerging opportunities within the Web3 space.

The Regulations Haven’t Deterred Popular Crypto Exchanges

BitMEX, formerly a leading exchange renowned for its provision of derivative products allowing traders to amplify their capital by up to 100 times, recently announced its plans to introduce a distinct application solely focused on spot trading for users in Hong Kong.

By developing a separate app dedicated to the city’s users, BitMEX aims to ensure the utmost safety and compliance, aligning perfectly with the expectations set by Hong Kong regulators.

Stephan Lutz, the CEO of BitMEX, emphasized that this approach guarantees full adherence to local regulations while providing a seamless trading experience for users.

On Tuesday, Gate.io, another established cryptocurrency exchange with a decade-long presence, unveiled its exclusive platform for Hong Kong, aptly named Gate.HK.

This move comes as Gate.io actively seeks licensing within the city, recognizing Hong Kong’s pivotal role as a global financial hub and acknowledging the significance of the SFC’s newly implemented licensing framework.

CEO Kevin Lee expressed the firm’s proactive approach in pursuing this licensing opportunity. With the recent developments in the regulatory landscape, retail investors in Hong Kong can already begin utilizing crypto exchanges that have initiated their services within the city.

As per the updated regulations, retail traders are limited to purchasing tokens with substantial market capitalizations, such as Bitcoin and ether. This restriction ensures a focus on more established cryptocurrencies, safeguarding the interests of retail investors.