Surge in Crypto License Applications in Hong Kong

The Securities and Futures Commission (SFC) in Hong Kong has received 18 applications for cryptocurrency licenses from both local and global players within a span of two months. One of the applicants is Huobi HK, the Hong Kong branch of Huobi crypto exchange. A total of 18 crypto exchanges, including, OKX, Bybit, and DFX Labs, have filed for the same license since mid-November 2023. These applications require applicants to undergo stringent due diligence checks, including a traditional financial audit that goes beyond proof-of-reserves (PoR). As a result, Web3 companies are spending up to $25 million to develop their license applications.

The recent clarity provided by Hong Kong on exchange licensing has also attracted traditional brokerages such as Tiger Brokers, a Chinese stockbrokerage. In January, Tiger Brokers upgraded its Type 1 SFC license to include crypto trading for professional investors and financial institutions based in Hong Kong. John Fei Zeng, the CFO and director of Tiger Brokers, stated that cryptocurrency is becoming an important asset class and a natural extension of their business as a broker-dealer due to the integration of Web3 technology with Tiger’s fintech background.

In addition to license applications for crypto exchanges, Hong Kong’s regulator also received its first application for a spot Bitcoin exchange-traded fund (ETF) from Harvest Hong Kong, one of China’s largest fund managers, on January 26. Hong Kong has set a minimum insurance requirement of 50% for licensed crypto exchanges that handle customers’ assets. OSL Exchange, for example, disclosed that the 50% insurance coverage minimum applies to all assets under its custody. OSL also announced a two-year partnership with Canopius, a syndicate of underwriter Lloyds of London, for an insurance policy that covers 95% of its users’ assets.

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