Listen to the Article: Hong Kong's VASP License: One Year On

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In June 1, 2023, the Securities and Futures Commission (SFC) of Hong Kong announced the formal enactment of the new Virtual Asset Trading Platform Licensing System (VASP)​. As VASP approaches its first anniversary, let's take a closer look to see if the regulatory roadmap for cryptocurrency outlined by the Hong Kong SFC in last year's Consultation has been followed.

Recent Licensing Application Developments

Recent developments reveal that the cryptocurrency exchange HTX HK had its VASP application withdrawn for the second time by the SFC​ on May 14. The initial withdrawal occurred on February 23 this year, followed by a resubmission on February 26, in compliance with the SFC's deadline provisions (digital assets trading platforms failing to submit VASP applications by February 29, 2024, must close their businesses in Hong Kong within three months of May 31 or upon further notice).

On the flip side, HashKey Capital, a digital asset and blockchain company, secured the Type 4 license from the SFC​ after the acquisition of its Type 9. This milestone positioned HashKey Capital as the first licensed company capable of providing both securities and virtual asset management and advisory services to retail investors. A mixed bag of outcomes indeed.

How Many Licensed Virtual Asset Trading Platforms Are There?

The answer lies readily available on the SFC website. As of the time of writing, there are only two publicly licensed virtual asset trading platforms listed by the Hong Kong regulator: OSL Exchange under OSL Digital Securities Limited and HashKey Exchange under Hash Blockchain Limited, as mentioned earlier.

Notably, OSL had already secured the Type 1 and Type 7 licenses by the end of 2020, becoming the first digital asset trading platform in Hong Kong to be publicly listed, licensed in Hong Kong, backed by insurance coverage, and audited by the Big Four accounting firms. As for HashKey, as previously mentioned, they announced on August 3, 2023, that they had been approved by the Hong Kong SFC to upgrade their existing license and could henceforth provide trading services for mainstream cryptocurrencies such as Bitcoin and Ethereum to retail traders.

Therefore, in the year since the implementation of VASP, there have been no new licensed platforms, except only two platforms that had already obtained other licenses.

Applicants in Long Queues, Distant Prospects of Licensing

Despite the mandatory licensing regime of VASP in the SAR, being a traditional financial hub and with access to markets with numerous crypto traders such as mainland China and South Korea, remains attractive to a multitude of trading platforms. According to the latest SFC List of Virtual Asset Trading Platform Applicants, there are a total of 20 applicants; among the list of those whose applications were rejected, refused, or withdrawn, there are nine, including HTX HK mentioned earlier.

While licensing under VASP seems distant, it's worth noting that under the traditional business of the Hong Kong SFC's 10 license types, Type 1, Type 4, Type 7, and Type 9 licenses to some extent apply to virtual asset businesses. According to data provided by the SFC at the end of April, there are 14 holders of Type 1 license for virtual asset brokerage business, which can provide virtual asset trading services through a composite account arrangement; 11 holders of Type 1 license as introducing agents for virtual assets, which can act as IBs for virtual asset trading platforms; 16 holders of Type 4 license able to provide advice on virtual assets; 20 holders of Type 9 license capable of managing investment portfolios with more than 10% virtual assets.