Hong Kong has granted a digital asset exchange license to Hong Kong Digital Asset Xchange (HKDAEx) despite the application being submitted after the official deadline. The Hong Kong Securities and Futures Commission (SFC) approved the license, raising questions about the decision-making process behind this unexpected approval.
HKDAEx, a local cryptocurrency exchange, submitted its application on August 27, three months after the May 31 cutoff. The move has sparked speculation about the SFC’s regulatory practices. Observers are curious whether the commission has relaxed its rules or if other factors influence this decision.
SFC’s licensing requirements
The SFC mandated that all Virtual Asset Trading Platforms (VATPs) operating in Hong Kong must obtain a license by June 1, 2023. The deadline was set to ensure that only compliant and well-regulated platforms could continue to operate in the city. So far, only a few firms have successfully navigated the licensing process, with several applications still pending review.
The SFC has reserved the right to return applications if they are deemed incomplete or basic requirements have not been met. This stipulation has added to the uncertainty surrounding HKDAEx’s late application and subsequent approval.
The crypto travel rule
A key regulatory measure in Hong Kong’s digital asset framework is the “Crypto Travel Rule.” This rule requires detailed transaction information to accompany any virtual asset transfer exceeding HK$8,000 (approximately $1,000). Service providers must share all necessary data without exception. The rule aims to enhance transparency and combat illegal activities within the cryptocurrency market.
This regulation is part of Hong Kong’s broader effort to align its cryptocurrency regulations with international standards. The SFC and other regulatory bodies in the region have been working to establish a comprehensive framework that ensures the integrity of the digital asset market.
Stablecoin regulations and custody guidelines
In addition to licensing requirements for VATPs, the Hong Kong Monetary Authority (HKMA) has implemented strict regulations for stablecoin issuers. Since early 2024, any entity issuing fiat-referenced stablecoins in Hong Kong must be locally incorporated, maintain sufficient financial resources, and adhere to high governance standards.
The HKMA has also introduced a regulatory sandbox, allowing selected participants to test their operations under controlled conditions. This initiative follows a public consultation that concluded in July and is expected to lead to further legislative proposals.
The HKMA has set new guidelines for digital asset custodians, emphasizing stronger governance, enhanced asset segregation, and robust risk management practices. These guidelines were introduced in February 2024 and are part of the ongoing effort to strengthen the security and reliability of digital asset custody in Hong Kong.
Approving HKDAEx’s license after the deadline remains a significant development in Hong Kong’s evolving cryptocurrency regulatory landscape. As the SFC and HKMA continue to refine their frameworks, industry participants will closely monitor how these regulations impact the market and the broader adoption of digital assets in the region.