Hong Kong is in a reasonably difficult situation, attempting to be some of the outstanding crypto hubs. Even with town’s efforts to create a good regulatory environment, greater than a dozen exchanges struggle to get full licenses from the Securities and Futures Commission.

This case, in accordance with a Bloomberg report, shows the challenges lying ahead for Hong Kong’s crypto ambitions.

Crypto: Closer Regulatory Scrutiny

The SFC is looking hard at crypto exchanges, and preliminary results from those aforementioned inspections are sounding the alarm on poor practices.

Reports on this respect have come out, indicating that 11 exchanges maintained unsatisfactory practices, which the powers that be considered proximal to the purpose at which they might be licensed.

They vary from poor cybercrime protection to over-reliance on a couple of top executives managing client resources. Crypto.com and Bullish are under investigation. For this reason, their Hong Kong activities lag.

Only OSL and HashKey have full city licences. Though compliance has been difficult, the SFC hopes to issue more licenses by 2024.

Lawyers said 12 have withdrew their petitions, including Bybit and Huobi HK, that are well-known. These enterprises increasingly fear that the SFC’s strict rules may conflict with their business practices.

List of Hong Kong-based cryptocurrency exchanges that withdrew their license applications. Source: Hong Kong SFC

The Impact Of JPEX Scandal

Heightened regulatory scrutiny over the industry follows the JPEX scandal, where hundreds of investors lost a combined total of greater than $200 million when an unlicensed platform was accused of defrauding 2,600 victims.

The incident has further accelerated the SFC’s push for strict compliance measures across the board. The regulator is zeroing in on client-asset protection and assurance of strong know-your-customer arrangements.

The JPEX case clearly depicts that the SFC shouldn’t be going to do anything which might endanger the integrity of the crypto market in Hong Kong.

It’s putting exchanges that hope for a share of the lucrative Hong Kong market in a dilemma. Most of those corporations had ambitions to serve customers within the mainland, where trading in cryptocurrency is banned.

Complications arise under the framework of One Country, Two Systems, where exchanges are actually realizing that they’ll’t service the much larger mainland market from Hong Kong. This might ward off potential investors and firms from organising shop in town.

Competing With Other Jurisdictions

This puts Hong Kong’s ambitions at odds with its aspirations to be a crypto hub and the growing competition from Singapore. Although Hong Kong has made some positive steps toward having a regulatory framework that’s open and secure, the slow pace of licensing has attracted criticism.

Some observers now wonder if Hong Kong would have the option to supply a friendly environment to crypto firms in comparison with other areas with more clarified and inspiring regulations.

Prospects aren’t that bleak yet, and industry insiders are still hopeful. If properly regulated, Hong Kong can regain its former glory as one among the outstanding crypto hubs on this planet.

Featured image from Getty Images, chart from TradingView