Two months after the new licensing system came into effect, Hong Kong’s first batch of “licensed” cryptocurrency exchanges were launched.

On August 3, HashKey Exchange (hereinafter referred to as "HashKey") and OSL Digital Securities (hereinafter referred to as "OSL") successively announced that they had obtained approval from the Hong Kong Securities Regulatory Commission to provide virtual asset trading services to retail users.

"It is expected that these two institutions will be the first batch to be approved. To be more precise, the licenses of these two institutions have been 'upgraded' because they were licensed exchanges before." An industry insider pointed out.

According to reports, Hong Kong’s first batch of cryptocurrency retail business licenses have been issued. Starting from August 3, the two exchanges will officially provide digital asset trading services for mainstream cryptocurrencies such as Bitcoin and Ethereum to retail investors. .

"At present, it is basically certain that there are BTC, ETH and USDC. In the future, other currencies will be listed on exchanges and will need to undergo a lengthy review by the Hong Kong Securities Regulatory Commission. Only those that comply with regulatory requirements can be listed." An industry insider told reporters.

More organizations also revealed that they are still applying for retail compliance licenses in Hong Kong. Among them, OKX revealed to the China Times reporter that it is almost ready now. If everything goes well, it is expected to submit statistical results in September. Huobi Exchange told reporters that the license is still being applied for.

The first batch of licenses have been issued

On August 3, HashKey and OSL were approved by the Hong Kong Securities Regulatory Commission to upgrade their licenses No. 1 (securities trading) and No. 7 (providing automated trading services), and were allowed to engage in Hong Kong cryptocurrency retail business, becoming a new regulation for retail digital asset transactions in Hong Kong. The requirements will come into effect on June 1, 2023 for the first batch of institutions to obtain licenses.

Starting from August 3, the two institutions will officially provide digital asset trading services for mainstream currencies such as Bitcoin and Ethereum to retail investors.

"These two companies are the first to be approved, and there are no others." An industry insider revealed to a reporter from China Times.

"This confirms that our original intention of insisting on promoting supervision and pursuing compliance is correct. It also shows that supervision is the mainstream attitude in the field of digital assets and the foundation for the future development of the industry." said Hugh Madden, CEO of OSL.

Livio Weng, chief operating officer of HashKey Group, said: "With the implementation of Hong Kong's licensed exchanges and further clarification of the regulatory framework, the entire industry will become more transparent and investor confidence will also be greatly improved. We will create a platform specifically for A trading platform tailored for retail users.”

OSL is a cryptocurrency exchange under the financial technology and digital asset listed company BC Technology Group (stock code: 863HK), and HashKey is a cryptocurrency exchange under the digital asset management and financial business group HashKey Group. It was formerly known as HashKey Pro. The two institutions Obtained Hong Kong virtual asset trading licenses in 2020 and 2022 respectively.

The Hong Kong Securities and Futures Commission previously adopted a "voluntary licensing" system. Virtual asset trading platforms engaged in non-security tokens do not need to be licensed. Only two exchanges, OSL and HashKey, have obtained licenses. However, as the market changes, the "voluntary licensing" system is difficult to cover the market that is dominated by retail investors and uses non-security tokens as the main trading objects.

In order to adapt to market changes and comply with regulatory needs, the Hong Kong Legislative Council passed the latest amendments to the "Anti-Money Laundering and Counter-Terrorist Financing Ordinance 2022" ("Anti-Money Laundering Ordinance") on December 7, 2022, Hong Kong's new virtual asset services The commercial licensing system (the “new licensing system”) will be officially implemented on June 1, 2023.

Under the new licensing system, all virtual asset trading platforms operating in Hong Kong or promoting to Hong Kong investors must be licensed and supervised by the Securities and Futures Commission. Therefore, after the new licensing system takes effect on June 1, the Hong Kong Securities and Futures Commission begins to accept VASP (Virtual Asset Service Provider) license applications.

HashKey and OSL have already held Hong Kong license No. 1 and license No. 7, so they can complete the license upgrade through simple procedures.

It is reported that in addition to providing support for legal currency deposits and withdrawals, the HashKey trading platform will also cooperate with commercial banks including Hong Kong note-issuing banks to provide users with convenient legal currency deposit and withdrawal services.

In terms of investor protection, OSL will continue to implement its policies for customer protection and maintain a strict storage ratio of hot and cold digital asset wallets to protect customer assets.

More exchanges are applying for licenses

Since the launch of the new licensing system, many cryptocurrency-related institutions have stated that they are applying for licenses under the new licensing system.

According to different regulatory authorizations, the Hong Kong Securities and Futures Commission regulates security token transactions conducted by virtual asset exchanges (No. 1 + No. 7 license) in accordance with the Securities and Futures Ordinance; it will also supervise the Anti-Money Laundering Ordinance in accordance with the Anti-Money Laundering Ordinance. , supervise non-security token transactions on virtual asset exchanges (VASP license).

In other words, unlike HashKey and OSL, which already have licenses No. 1 and 7, other transactions need to apply for a digital asset license and a virtual asset service provider license (VASP) at the same time.

BC Technology CFO Hu Zhenbang pointed out in an interview with the media that under Hong Kong’s regulatory environment, asset custody and exchange business cannot be separated. According to the requirements of the Securities Regulatory Commission, if an exchange wants to operate licenses No. 1 and 7, it must also be in custody and cannot be handed over to a third party. Moreover, the client assets under custody cannot leave Hong Kong. This is why the threshold for trading licenses is so high. one.

"HashKey has designed and developed the system in accordance with the structure of a licensed exchange from the beginning of the project, that is, native compliance, rather than transformation based on a non-compliant platform." On August 4, HashKey responded to the China Times The reporter said that the focus includes a series of in-depth protection measures for user assets, as well as a complete set of risk control assessment and classification systems for virtual assets to ensure that different types of users can obtain corresponding risk trading services.

"For an exchange that wants to apply for a compliance license and carry out compliance business in Hong Kong, achieving compliance requires multiple efforts and investments." HashKey said that this includes establishing a legal compliance team, investing in security and technical resources, implement fund segregation and risk management mechanisms, establish audit and reporting systems, and conduct compliance training and education. At the same time, establishing good cooperative relationships and active communication with regulatory agencies is also key. These investments will help exchanges ensure compliant operations, protect user interests, and promote the healthy development of the industry.

"We have established the entity OKX Hong Kong and will use it to apply for a Hong Kong license. We are almost ready now. We need to wait for an independent third party to write an evaluation report. After the report is completed, the independent third party will apply on our behalf. I hope to get the license as soon as possible." Lennix, OKX's global chief commercial officer, said in a reply to a reporter from China Times that OKX's application for a Hong Kong retail license can be roughly divided into two stages, namely the preliminary preparation stage such as company structure establishment and company registration (expected to It will take 2-3 months) and the approval stage of the Hong Kong Securities Regulatory Commission (estimated to be 4-6 months).

"If everything goes well, OKX is expected to submit the audit results in September, but the specific time for approval and obtaining the license will have to wait for the Hong Kong Securities Regulatory Commission's response at that time, but it will not affect the smooth development of OKX's business in Hong Kong until it is approved." Lennix said.

Sun Yuchen, a member of Huobi’s global advisory board, previously stated in a media program that Huobi submitted a VASP application at the end of May, which included an 18-month grace period for regulators to approve or reject the application, but “Huobi It may obtain a cryptocurrency trading license in Hong Kong as soon as the end of this year.”

On August 3, Huobi told a reporter from the China Times: "The license is still being applied for and will be synchronized as soon as there is any progress."