Hong Kong’s Securities and Futures Commission (SFC) has uncovered unsatisfactory practices at several “deemed-to-be-licensed” cryptocurrency exchange platforms during recent on-site inspections, according to a Bloomberg report.
These findings come as the city pushes forward with its ambition to become a leading digital-asset hub, but faces challenges amid uncertainties surrounding the full licensing of 11 crypto exchanges that initially received approvals earlier this year.
The inspections revealed that some of these crypto firms are excessively dependent on a small group of executives for the custody of client assets, raising concerns about operational risks.
Additionally, other firms were found to have inadequate measures in place to safeguard against cybercrime, highlighting significant vulnerabilities in their systems, sources familiar with the matter disclosed.
The 11 exchanges under scrutiny include prominent global players such as Crypto.com and Bullish, alongside HKbitEX, PantherTrade, Accumulus, DFX Labs, Bixin.com, EX.IO, YAX, WhaleFin, and Matrixport HK.
However, it remains unclear which specific firms failed to meet the SFC’s regulatory standards.
An SFC spokesperson commented that while the agency does not disclose details on individual cases, the inspections were aimed at verifying whether the applicants complied with the SFC’s stringent requirements, particularly regarding the safeguarding of client assets and adherence to know-your-client (KYC) processes.
These areas are critical for maintaining the integrity and security of financial markets, especially in the fast-evolving world of digital assets.
The full licensing of these crypto platforms is expected to be finalized by the end of 2024. Currently, only two cryptocurrency platforms—OSL and HashKey—hold full licenses in Hong Kong, reflecting the rigorous standards set by the SFC.
In a related development, the SFC reported a significant reduction in its deficit, which narrowed by 63% to HK$36.9 million for the quarter ending in June compared to the same period last year.
This improvement was driven by a 26% increase in income, which rose to HK$521.9 million, bolstered by rising levies and investment income.
Additionally, Hong Kong-domiciled funds experienced an 80% increase in net fund inflows during the June quarter compared to the previous quarter, signaling growing investor confidence in the region.
