The Hong Kong virtual asset licensing system faces a dilemma the rise of JPEX while institutional enthusiasm for applying for licenses decreases.

The Hong Kong virtual asset licensing system faces a dilemma with the rise of JPEX while institutional license applications decrease.

Author | Carl

Editor | C

Techub News Original (ID: TechubNews)

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In promoting the new licensing system for virtual asset exchanges, the Hong Kong Securities and Futures Commission (SFC) has taken another step forward.

On September 13th, the SFC issued a notice stating that the unregulated virtual asset trading platform JPEX has not applied for a license from the SFC. Previously, the SFC had issued risk warnings regarding unlicensed exchanges, but this is the first time it has targeted a specific exchange.

As a result, the JPC token of the JPEX exchange platform has dropped by more than 30%, and JPEX staff at the Token2049 event in Singapore have left early.

Currently, Hong Kong’s virtual asset licensing system is facing challenges, with unregulated cryptocurrency exchanges on one side and a decreasing enthusiasm for licenses among virtual asset exchanges. Compared to the high cost of applying for a license, the market outlook for Hong Kong is not optimistic.

In addition to compliance, the future of Hong Kong’s Web3.0 may require more innovation and exploration.

1. The SFC warns JPEX by name, and JPEX gives up applying for a license

On September 13th, the SFC’s official website issued a notice titled “Warning Statement Regarding Unregulated Virtual Asset Trading Platforms,” stating that the virtual asset trading platform JPEX actively promotes its services and products to the Hong Kong public through social media influencers and over-the-counter virtual asset currency exchanges. However, JPEX has not obtained a license from the SFC and has not applied for any relevant licenses with the SFC.

The notice also pointed out suspicious aspects of JPEX, such as offering high returns, falsely claiming to have obtained virtual asset licenses from overseas regulatory agencies, and user complaints.

On the same day, the SFC’s official public account published an article titled “JPEX has no license, be careful and vigilant!” reminding investors to remain highly vigilant and cautious, as trading on unlicensed platforms may result in losses.

This is the first time the SFC has specifically named a virtual asset exchange since the new licensing system for virtual asset trading in Hong Kong came into effect on June 1st this year. Prior to this, the SFC had issued warnings to the public regarding related risks.

On August 7th, the SFC issued a notice stating that it had noticed certain unlicensed virtual asset trading platforms falsely claiming to have submitted license applications to the SFC, which misled the public into thinking that these platforms complied with SFC regulations. At the same time, the SFC also published a link to check the licensed status of platforms.

According to Techub News’ research, the only licensed virtual asset trading platforms currently are OSL Exchange and HashKey Exchange.

Regarding the announcement from the Hong Kong Securities and Futures Commission, JPEX responded on the same day, stating that it intends and plans to apply for a license in Hong Kong, but has not formally submitted the application yet due to the time required for preparation and legal document deployment.

JPEX believes that the announcement from the Securities and Futures Commission conflicts with the Hong Kong government’s intention to build an image as a Web 3.0 metropolis. It will consider canceling the license application in Hong Kong and adjusting future policy development.

According to insiders, JPEX is a virtual asset exchange established by Chinese individuals. It has indeed conducted promotional activities in Hong Kong, and advertisements for the platform can be seen on the streets of Hong Kong.

On September 14th, KOL killthewolf.eth warned users on X (formerly Twitter) to use “wildcat exchanges” less. He mentioned that withdrawing 1000U on the JPEX exchange requires a transaction fee of 999U, and currently there are no staff members at JPEX’s booth at the Token2049 event in Singapore.

Another person at the Token2049 event confirmed that JPEX staff members left the venue early on the 14th, but the display boards were still left at the booth.

According to the JPEX official website, on the morning of September 14th, the JPEX platform token JPC fell more than 30% within 10 hours.

2. Declining enthusiasm for license applications

On June 1st of this year, the “Guideline on Supervision of Virtual Asset Trading Platforms” was officially implemented in Hong Kong.

According to the guideline, centralized virtual asset trading platforms operating in Hong Kong or promoting services to Hong Kong investors must obtain a license from the Securities and Futures Commission of Hong Kong and be regulated by it. Virtual asset trading platforms that have already obtained the No. 1 and No. 7 licenses issued by the Securities and Futures Commission and have been operating in Hong Kong have a one-year exemption period and need to supplement their existing licenses.

Industry analysts believe that JPEX does not fall into the above two categories, so continuing operations in Hong Kong does indeed have the suspicion of violating relevant regulations.

“From issuing warnings, publishing compliance lists, to naming warnings, the Securities and Futures Commission of Hong Kong is tightening regulations step by step and implementing the previously formulated policies. Unlicensed exchanges that continue to operate in Hong Kong will face considerable risks,” the analyst said.

Since Hong Kong issued the Declaration on the Development of Virtual Assets in October last year, many virtual asset exchanges and traditional institutions have shown interest in Hong Kong and announced their embrace of Hong Kong’s new virtual asset licensing system.

According to media reports, virtual asset exchanges such as OKX, Binance, Huobi, Neo Global Development, HKVAX, Bitget, HKbitEX, Bullish, Gate.io, and traditional institutions such as Futu Securities, Lion Group, Victory Securities, and New Certus Technology have publicly announced their application for the Hong Kong virtual asset license. Lily Z King, Chief Operating Officer of Cobo, stated in an interview with the media that there are 140 companies applying for virtual asset licenses in Hong Kong.

On August 3rd, Hashkey and OSL announced an upgrade to their virtual asset licenses, allowing them to provide services to retail users.

However, industry analysts have expressed that the user growth of Hong Kong compliant exchanges is not ideal. The market size of users in Hong Kong is limited, and due to the bear market, the general public in Hong Kong does not have high expectations for the cryptocurrency industry.

A Web3 practitioner who has obtained Hong Kong identity through the Hong Kong Talent Scheme told Techub News that opening an account with Hashkey still has a high threshold. Even though they have obtained Hong Kong identity, they are still unable to open an account because they are required to provide proof of renting a house in Hong Kong.

“I need to commute between Shenzhen and Hong Kong for work, but the rent in Hong Kong is too expensive, so I choose to live in Shenzhen. Unexpectedly, I am unable to open an account with Hashkey,” said the Web3 practitioner.

Currently, the enthusiasm for applying for virtual asset licenses among various exchanges has declined.

Industry analysts have stated that exchanges primarily value the importance of the Hong Kong market and the development prospects after compliance. The development of the two compliant exchanges has made people start to doubt their previous expectations. On the other hand, the cost of applying for a license is high and also faces uncertainty.

Previously, according to media reports, the cost of applying for a virtual asset license in Hong Kong is around 100 million HKD.

HashKey Group COO, Eric Weng, stated in an interview with the media that it is estimated that only 5-8 exchanges will ultimately obtain Hong Kong licenses, and it is expected that 80% of the exchanges currently applying for licenses will withdraw their applications.

Industry analysts have expressed that there needs to be a balance between compliance and innovative development, as being overly compliant makes it difficult to develop. They suggest that Hong Kong needs to open up some space for innovative development on the basis of compliance, and compliant exchanges should also have more innovation and exploration, such as lowering the threshold for user registration, promoting Web3 to more Hong Kong residents, and allowing exchanges to offer more trading pairs and functions.

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