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Hong Kong SFC to conduct compliance checks on crypto firms

The inspections will place particular emphasis on how these firms are safeguarding client assets and implementing KYC processes.

Hong Kong SFC compliance checks being conducted in an urban office.

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The Hong Kong Securities and Futures Commission (SFC) has announced that it will carry out on-site compliance checks on local virtual asset trading platforms (VATPs) that are still in the process of completing their regulatory applications after the June 1 licensing deadline.

In a notice issued on May 28, the SFC emphasized that all local crypto trading platforms must be either licensed or “deemed-to-be-licensed” by the regulatory body before the June 1 deadline. Operating an unlicensed VATP in Hong Kong after this date would be considered a criminal offense, and the SFC would be actively pursuing non-compliant companies.

The SFC stated that in the coming months, it will conduct on-site inspections of deemed-to-be-licensed VATP applicants to assess their compliance with the regulatory requirements. The inspections will place particular emphasis on how these firms are safeguarding client assets and implementing Know Your Customer (KYC) processes.

Warnings and investor protection

The regulatory body urged investors to only trade cryptocurrencies on SFC-licensed platforms to ensure their protection. It also warned companies seeking licenses not to actively market their services or onboard new retail clients until they are formally licensed.

Additionally, the SFC reminded these firms to prevent mainland Chinese residents from accessing their services, in line with the country’s ban on cryptocurrency trading.

Earlier this month, it was reported that the number of crypto exchanges seeking operational licenses in Hong Kong had been steadily decreasing. A total of 11 crypto companies and exchanges, including well-known platforms like OKX and Huobi’s local arm, withdrew their applications ahead of the deadline. As of now, only 18 applications remain pending approval.

In response to the upcoming licensing requirements, some crypto firms have taken proactive steps to ensure compliance. For instance, Gate.HK, a crypto exchange, ceased all activities related to acquiring new users and marketing, prevented existing users from making deposits, and began delisting tokens on May 23. The exchange plans to relaunch its services after reconstructing its platform to comply with Hong Kong’s regulatory requirements.

According to the SFC, only two companies, OSL Digital Securities Limited and Hash Blockchain Limited, have been granted a license to operate in Hong Kong so far.

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