Hong Kong Will Inspect Offices of Crypto Platforms as Important Compliance Deadline Looms

• Hong Kong's regulator will conduct on-site inspections of crypto platforms offering trading services which have applied for a license.
• By June 1, 2024, all crypto platforms in Hong Kong must be either licensed or “deemed-to-be-licensed."

Hong Kong's Securities and Futures Commission (SFC) will conduct on-site inspections of those crypto trading platforms interested in continuing to pursue their licensing applications as a key deadline looms, the regulator announced Tuesday.

By June 1, 2024, all crypto platforms providing trading services known as virtual asset trading platforms (VATPs) in Hong Kong must be either licensed by the SFC or “deemed-to-be-licensed,” which is a temporary arrangement during the process to get fully compliant. Beyond that deadline, it would be a "criminal offence to operate in Hong Kong" in breach of anti-money laundering and counter-terrorism laws, the SFC said.

"In the coming months, whilst the deemed-to-be-licensed VATP applicants pursue their applications, the SFC will conduct on-site inspections to ascertain their compliance with the SFC’s regulatory requirements, with a particular focus on their safeguarding of client assets and know-your-client processes," the announcement said.

OSL Digital Securities Limited and Hash Blockchain Limited are the only two entities currently listed as licensed by the SFC. The applications of 18 entities remain in the system, while 11 entities have either withdrawn their applications or have been removed. Recently, crypto exchange OKX and Huobi Hong Kong withdrew their applications.

Notably, by June 1, it will be clear how many of the 18 entities remain in the SFC system as "deemed-to-be-licensed." Hong Kong's push to become a major crypto hub could come under scrutiny if several or some of the 18 applicants don't move past this important deadline.

The SFC said it did not expect applicants to actively market their services or onboard new retail clients before being fully licensed.

"It's unsurprising that SFC plans to introduce a higher level of scrutiny than is typical during an application process, such as onsite inspections," said Angela Ang, a senior policy adviser for blockchain intelligence firm TRM Labs. "The recent spate of application withdrawals may also be an effort by the SFC to clean house before the deeming arrangement comes into effect."

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