Hong Kong’s new encryption regulations come into effect: taking stock of the “first batch of pioneers”

Hong Kong's encryption regulations now in effect: assessing the "first wave".

Original author: Babywhale, Foresight News

On June 1st, Hong Kong’s policies related to cryptocurrency were officially implemented, opening the door to cryptocurrency asset trading and issuance. Although it is difficult for regulatory agencies in Hong Kong and around the world to achieve effective but non-obstructive regulation while supporting the development of cryptocurrency assets, bold attempts are always worthwhile.

As Asia’s financial center, the orderly development of the Web3 industry under regulation helps to attract funds, technology, and talent, and also helps Web3 institutions and projects in Asia to go global. Since this year, many institutions have started to step up their layout in the Hong Kong market.

Web3 Comprehensive Institution

HashKey Group

As an institution that has always been at the forefront of the Web3 industry, HashKey began its compliance journey in Hong Kong in 2022.

In April 2022, HashKey Group announced that it had obtained the principle approval (AIP) of the Hong Kong Securities and Futures Commission (SFC) for its subsidiary, Hash Blockchain Limited (HBL), to operate a virtual asset trading platform under Type 1 (Securities Trading) and Type 7 (Automated Trading Services, ATS) licenses. After meeting all conditions and obtaining final approval, HashKey will provide cryptocurrency trading services to professional investors in Hong Kong, including licensed financial institutions. The platform operated by HBL will provide virtual asset trading services, including cryptocurrency such as Bitcoin and Ethereum, stable coins, and security token offerings (STOs), etc.

In September of the same year, HashKey Capital, HashKey’s venture capital department, obtained regulatory approval from the Hong Kong Securities and Futures Commission (SFC) and completed the change of its Type 9 asset management license, allowing its investment portfolio to be 100% transferred to virtual asset projects related to cryptocurrency.

In November, HashKey Group’s subsidiary, Hash Blockchain Limited (HBL), has been granted a license by the Hong Kong Securities and Futures Commission (SFC) to operate a virtual asset trading platform under Type 1 (Securities Trading) and Type 7 (Providing Automated Trading Services) licenses, providing services to professional investors.

In February of this year, HashKey announced that it has obtained approval from the Hong Kong Securities and Futures Commission, and its subsidiary, Hash Blockchain Limited (HBL), can conduct over-the-counter (OTC) trading of virtual assets outside of the virtual asset platform. This approval allows HashKey to engage in virtual asset trading outside of the trading platform. When there is a demand for trading tokens that have not been listed on the exchange, HBL, as an intermediary, can match the two parties for the transaction.

In April this year, HashKey Group announced that its compliant trading platform, HashKey PRO, would officially launch in the second quarter. HashKey PRO has obtained approval from the Hong Kong Securities and Futures Commission (SFC) and holds licenses for Type 1 (Securities Trading) and Type 7 (Providing Automated Trading Services), operating a virtual asset trading platform. HashKey PRO provides fiat currency deposit and withdrawal support, allowing users to transfer US dollars directly to the HashKey PRO fiat wallet via SWIFT, and has partnered with ZA Bank and Bank of Communications (Hong Kong) as settlement banks to provide fiat deposit and withdrawal services.

This month, HashKey PRO, a compliant virtual asset trading platform regulated by the Hong Kong Securities and Futures Commission (SFC), announced that it has submitted a license application under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615) that took effect on June 1 to offer retail services in Hong Kong.

Cobo

In April this year, Cobo co-founder and CEO Shen Yu stated that the company is currently applying for more licenses according to the existing regulatory framework and plans to expand its team in Hong Kong, accumulating more professional technical and business personnel.

Amber Group

In April this year, Amber Group stated that it is considering selling its Japanese subsidiary and plans to apply for a Hong Kong license after shifting to create a digital asset center in Hong Kong. In addition, Amber Group announced during this year’s “Web3 Hong Kong Carnival” that it has partnered with technology consultancy Thoughtworks to jointly develop technology tools and solutions to promote the secure and transparent development of Web3 using artificial intelligence.

Exchanges

BitgetX

In May, virtual asset exchange BitgetX launched its website and opened registration and trading services, providing services to users in Hong Kong, and currently supports Traditional Chinese and English. The platform has launched spot trading services for more than 200+ currencies.

OKX

In February this year, Xu Mingxing stated that OKX has been applying for a Hong Kong crypto license starting from 2022. Afterwards, Lennix, the Managing Director of OKX’s Global Institutional Business Department, stated on Twitter that the OKX team has been actively preparing for the Hong Kong license application for a year, and has set up a dedicated team of more than 20 people responsible for the Hong Kong compliance process, with team members from the SFC, SEC, international law firms or licensed financial institutions.

In March, OKX announced the establishment of a physical entity in Hong Kong to launch virtual asset services and intends to apply for a virtual asset service provider license under the revised Anti-Money Laundering and Counter-Terrorist Financing Ordinance 2022 (which will take effect on June 1, 2023), as well as apply for Type 1 and Type 7 licenses under the Securities and Futures Ordinance.

In February of this year, Huobi Global advisor Justin Sun said in an interview with Bloomberg that the digital asset exchange Huobi plans to expand its offices and business in Hong Kong. Later, Justin Sun said on Twitter that Huobi Global has applied for a cryptocurrency trading license in Hong Kong and will be able to expand its services and products offered to Hong Kong customers, providing a wider range of cryptocurrency trading and investment options. In addition, Huobi will also launch a new exchange, Huobi Hong Kong, in Hong Kong. In April, Justin Sun said that Huobi will set up a new office in Hong Kong.

In May, Huobi announced that it will officially launch Huobi Hong Kong, and is ready to provide users with a variety of cryptocurrency trading services. Starting from June 1st, users can buy, sell and hold mainstream cryptocurrencies such as BTC and ETH, as well as other major cryptocurrencies listed in independent indices through Huobi HK. Huobi HK is currently applying for a virtual asset trading platform (VATP) license and working with independent auditors to develop security, compliance and anti-money laundering measures. This month, Justin Sun said on CoinDesk TV that Huobi may get a cryptocurrency trading license in Hong Kong as early as the end of this year. He said that Huobi submitted an application for a virtual asset service provider (VASP) last week, including an 18-month grace period during which the regulator can approve or reject the application. Justin Sun said he expects the license to be granted within the next 6 to 12 months.

In August 2022, Hippo Financial Services under Gate.io has obtained the Hong Kong virtual asset custody license and has been approved to provide virtual asset custody services in Hong Kong.

In February of this year, Gate.io announced that it had obtained a Trust or Company Service Provider (TCSP) license in Hong Kong, allowing it to offer a range of digital asset custody solutions in the city. Also in February, Gate Group, the parent company of Gate.io, announced that it would apply for a new crypto license in Hong Kong and launch a new platform, Gate HK, designed specifically for the Hong Kong market.

Cryptocurrency exchange Bybit plans to apply for a license in Hong Kong in June under proposed rules that are set to take effect that month. The exchange aims to establish its core Asian business and relocate some of its research and marketing teams to the city.

Pionex, a cryptocurrency exchange, established a subsidiary in Hong Kong in March and plans to apply for a virtual asset service provider license under the revised Anti-Money Laundering and Counter-Terrorist Financing Ordinance of 2022. Pionex has also applied for a Type 1 license under the Securities and Futures Ordinance in Hong Kong. Once licensed, Pionex will offer compliant and secure trading services in the Hong Kong market.

Cryptocurrency exchange BitMEX launched BitMEX Hong Kong in May as a transitional service for Hong Kong users while it applies for a virtual asset service provider license. BitMEX has stated that from May 29, 2023, Hong Kong users will no longer be able to access the BitMEX website or API, and all account balances will be transferred to BitMEX Hong Kong accounts, which users will need to access through a new BitMEX Hong Kong mobile app.

Cryptocurrency exchange BitMart announced the official launch of its trading platform, BitMart Hong Kong, in May, to continue serving institutional and retail investors in Hong Kong. BitMart Hong Kong currently supports spot trading of virtual assets such as Bitcoin, Ethereum, and Litecoin.

Australian cryptocurrency exchange Independent Reserve plans to expand its business to Hong Kong. According to Independent Reserve co-founder and CEO Adrian Przelozny, his team will visit Hong Kong by the end of March to meet with banks, regulators, lawyers, and compliance experts to determine whether the exchange is suitable for expansion to the city.

Web3 Projects

STEPN

STEPN, the Move to Earn app that was popular in early 2022, announced in September of last year that it would set up its first physical office in Hong Kong’s Cyberport, a government-owned startup accelerator, as a regional headquarters outside of Australia. STEPN co-founder Jerry Huang said that the company was persuaded to take action after former Cyberport chairperson Carrie Lam visited Sydney and invited STEPN to set up a physical office in the Cyberport.

Alchemy Blockingy

In March of this year, Alchemy Blockingy announced that it had partnered with investment fund Mouette Securities’ parent company ZD Group. ZD Group will provide investment and share its four financial licenses issued by the Hong Kong Securities and Futures Commission and the Insurance Authority with Alchemy Blockingy, which will provide cryptocurrency payment solutions for all of ZD Group’s businesses.

DFINITY

In April of this year, DFINITY founder and chief scientist Dominic tweeted that he had accomplished three things during his time in Hong Kong: plans to establish an Internet Computer Hub, which may be stationed at the Cyberport in the future; the formation of the ICP Asia Alliance; and cooperation with local venture capital firms to promote projects based on IC.

Conflux

In February of this year, Conflux announced that it would partner with China Telecom to launch the blockchain-supporting SIM card BSIM. China Telecom will launch the first BSIM pilot project in Hong Kong later this year. The BSIM card integrates Conflux’s Tree-graph, dual PoS, and PoW technologies, providing high system performance support for any blockchain. The card manages and stores users’ public and private keys, and can also perform encrypted storage, key retrieval, and other operations.

Hardware Wallet OneKey

In May of this year, the hardware wallet OneKey received HKD 500,000 in funding from the Cyberport and was provided with office space by the Cyberport. OneKey stated that it is actively communicating with the local government of Hong Kong and is focusing on applying for relevant encryption licenses in Hong Kong.

Digital Asset Companies

Seba Crypto Bank

Last November, Swiss-based Seba Crypto Bank opened a new office in Hong Kong to drive growth in the Asia-Pacific region. Seba Hong Kong initially plans to focus on market research and consulting services. Seba’s Swiss office offers a regulated banking and investment service that includes trading, structured products, bank accounts, bank cards, credit, collateral, and cryptocurrency and NFT custody.

Encryption Data Provider Kaiko

In March this year, Kaiko announced plans to relocate its Asian headquarters from Singapore to Hong Kong, considering the latter’s push to be the center of the digital asset industry. Kaiko provides encrypted data to institutions such as Intercontinental Exchange (ICE) and Deutsche Börse.

Digital Asset Custody Service Provider Liminal

In May this year, wallet infrastructure and digital asset custody service provider Liminal announced that it had obtained a Hong Kong TCSP (trust or company service provider) license, allowing the company to offer regulated digital asset custody services in Hong Kong.

Digital Asset Broker LTP

In May this year, digital asset main broker LTP officially connected with OKX Hong Kong to provide comprehensive services for institutional users in Hong Kong, and is committed to serving more compliant entities and institutional investors.

Digital Asset Trust Institution First Digital

This month, Hong Kong digital asset trust institution First Digital announced the launch of the US dollar stablecoin First Digital USD (FDUSD), which is pegged to the US dollar and is a programmable stablecoin designed to provide reserve support from assets of equivalent fair value, with reserves held in independent accounts of Asian institutions.

Digital Asset Platform OSL

This month, Hong Kong digital asset platform OSL applied to the Securities and Futures Commission (SFC) of Hong Kong to upgrade its existing license to obtain a digital asset retail trading license.

Non-Web3 Financial Institutions and Companies

DBS Bank

In February this year, Sebastian Blockingredes, CEO of DBS Bank (Hong Kong), said that DBS Bank in Singapore plans to apply for a Hong Kong digital asset license to provide cryptocurrency-related services to Hong Kong users.

Interactive Brokers

In February this year, Interactive Brokers launched cryptocurrency trading in Hong Kong, allowing professional investor clients of Hong Kong Interactive Brokers (individuals who can invest more than HKD 8 million in assets or Hong Kong resident institutions with assets exceeding HKD 40 million) to trade Bitcoin and Ethereum.

Investment Broker Signum Digital

In March this year, Signum Digital received a principle approval from the Securities and Futures Commission (SFC) of Hong Kong to provide a security token (STO) issuance and subscription platform for professional investors. The tokens issued are traded on the blockchain and are associated with various asset classes such as private equity, real estate, art and collectibles.

Tiger Securities

In April this year, Tiger Securities (Hong Kong), a subsidiary of Tiger International, announced the launch of its cash management service. The company also disclosed its intention to apply for a virtual asset trading platform license in Hong Kong and is currently in discussions with relevant companies, with plans to promote the license in June this year.

Greenland Holdings

In May this year, a senior executive of Greenland Holdings said that a subsidiary of the company is planning to apply for a license to trade virtual assets on the Hong Kong Exchange. Green Finance Technology will set up a new company specializing in virtual asset trading, and the new department will submit an application to the Securities and Futures Commission. If approved, the new company plans to trade cryptocurrencies, NFTs and products related to carbon emissions.

Hong Kong ZA Bank

In May this year, Hong Kong ZA Bank announced plans to launch virtual asset trading services for retail investors, and through cooperation with local licensed virtual asset exchanges, ZA Bank will seek regulatory approval to allow retail investors to buy and sell virtual assets using fiat currency through the ZA Bank App.

Asset Management Company VSFG

Zhu Chengyu, chairman of Asset Management Company VSFG, said he is preparing to apply to the Securities and Futures Commission for a Virtual Asset Service Provider (VASP) license, as well as a Type 7 (providing automated trading services) license. In addition, Zhu said VSFG is in talks with several ETF issuers and regulators in Hong Kong to allow its Bitcoin spot funds to be listed in Hong Kong in ETF form.

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