Hong Kong Virtual Asset Exchange Faces Compliance Challenges

The transitional period for the regulation of virtual asset exchanges in Hong Kong has ended; however, some unlicensed exchanges continue to operate in a gray area, creating a phenomenon of "clear but not withdrawn."

According to the investigation, most offshore exchanges have stopped registering new users from Hong Kong, but with the exception of a few platforms, the majority still provide services to registered Hong Kong residents and have not issued any announcements regarding service suspension.

Legal experts point out that providing virtual asset services without a license constitutes illegal behavior. If convicted through public prosecution, the maximum penalty can be a fine of 5 million Hong Kong dollars and 7 years of imprisonment. If the illegal behavior continues, an additional fine of 100,000 Hong Kong dollars will be imposed daily.

Experts emphasize that even if an exchange holds compliance licenses from other countries, it cannot conduct virtual currency trading business in Hong Kong or mainland China. Currently, only two platforms in Hong Kong have obtained licenses from the Securities and Futures Commission, while another 11 have obtained qualifications pending issuance of licenses. At the same time, the license applications of the 11 exchanges have been returned, rejected, or withdrawn.

According to reports, some exchanges are withdrawing because they cannot meet regulatory requirements, including a commitment not to have users from mainland China in any region. Industry insiders say that exchanges that withdraw their applications may reapply after updating their legal entities, but they may not be able to use brands similar to existing offshore exchanges.

Legal experts say that as long as the licensing requirements in Hong Kong are met, the exchange can reapply. However, using a new brand is intended to avoid public confusion regarding the exchange's compliance status.

Experts also point out that the legal Compliance and operational costs of virtual currency exchanges are very high, which may be the reason why many exchanges choose to withdraw their license applications. Currently, the Hong Kong virtual currency exchange market is not seen as an attractive business opportunity.

Some industry insiders believe that Hong Kong's policies and measures to promote Web3 development lack comprehensive consideration and that the process is time-consuming. They point out that the government's reference to traditional financial policies has led to overly strict regulations, lacking flexibility and innovation.

In the future, the key challenges faced by the Hong Kong Web3 industry include how to effectively regulate non-compliant exchanges that are "transparent yet not withdrawing", and how to find a balance between compliance and innovation. This will be an important step in the development of Hong Kong's virtual asset market.