Hong Kong SFC to Approve More Crypto Exchanges Amid Industry Scrutiny

The Hong Kong Securities and Futures Commission (SFC) is poised to approve additional cryptocurrency exchanges before the end of 2024, according to CEO Julia Leung. Speaking on October 6 to local media outlet HK01, Leung confirmed that 11 platforms have already undergone on-site reviews, with further progress expected in their applications by year-end.
This comes on the heels of the SFC's approval of HKVAX, a local exchange that aims to launch its platform in the fourth quarter of 2024. HKVAX is the third exchange to receive regulatory approval in Hong Kong, following HashKey and OSL, which had their licenses upgraded under the city’s revamped regulatory regime. Bullish, the parent company of CoinDesk, is also seeking approval from the regulator.
Leung’s comments reflect the SFC’s efforts to expand the number of approved exchanges, a move aimed at bolstering Hong Kong's ambition to become a leading crypto and web3 hub. However, the regulatory body has faced criticism for its stringent approach, which some argue could hinder this goal.

Striking a Balance: Regulatory Challenges and Industry Concerns
The SFC’s cautious stance on cryptocurrency regulation stems from concerns over investor protection and the integrity of the market. A report from August criticized certain exchanges for “unsatisfactory practices,” highlighting how some firms were overly dependent on a limited number of executives to manage the custody of client assets, and others lacked robust measures to prevent cybercrime.
While this diligence is seen as essential for maintaining market stability, it has also been viewed as an obstacle for larger international players. Major exchanges like Coinbase were invited to establish a presence in Hong Kong but have not proceeded with an application. Other firms, such as OKX and Bybit, withdrew their applications in May, fueling speculation that the SFC’s licensing requirements were too restrictive. According to a report by the South China Morning Post, one significant reason for these withdrawals was the SFC's mandate that platforms block access to their services by mainland Chinese residents.
In an opinion piece published shortly after OKX withdrew, lawmaker Duncan Chiu argued that the approval conditions borrowed too heavily from traditional finance, imposing frameworks that did not align well with the web3 sector. Chiu also noted that many of the remaining applicants were "small in scale," suggesting that the SFC’s strict regulations may deter large-scale firms from participating in Hong Kong’s evolving crypto landscape.

Improving Transparency and Addressing Public Concerns
Public criticism of the SFC’s regulatory framework intensified after the collapse of rogue exchange JPEX in 2023. The shutdown left over 2,600 Hong Kong residents collectively out of pocket by approximately $200 million. In response, Hong Kong police launched a wide-reaching investigation, arresting over 70 individuals connected to the scandal, though no formal charges have been filed to date.
The fallout from JPEX forced the SFC to reevaluate its approach to communicating with the public. One major reform has been the publication of a list of companies that have applied for crypto exchange licenses, providing greater transparency in the approval process. The SFC has also begun listing suspicious platforms on its website to help protect potential investors.
The JPEX debacle has also reignited calls for more robust regulation of over-the-counter (OTC) crypto trading, which was linked to several chains of storefronts associated with the exchange. In response to these concerns, Leung said the SFC is actively seeking industry input on potential regulations for OTC and custody services, indicating that the regulatory framework may expand to cover these areas in the near future.

Moving Forward: Crypto's Future in Hong Kong
Despite the regulatory challenges, the SFC's upcoming approvals are a positive signal for the future of cryptocurrency in Hong Kong. As the city positions itself as a hub for digital assets, industry participants are watching closely to see whether the regulator will strike the right balance between protecting investors and encouraging innovation.
The licensing of more exchanges is expected to drive growth in Hong Kong's crypto ecosystem, particularly as more firms comply with the stringent requirements laid out by the SFC. While some large players have exited the market due to these regulations, others—like Crypto.com—remain on the applicant list, hopeful that the evolving landscape will eventually allow for a broader, more inclusive market.
With a few months left in 2024, the spotlight is on the SFC as it moves toward expanding the roster of approved exchanges. Whether this will be enough to cement Hong Kong’s status as a global crypto hub remains to be seen, but the promise of a more regulated and transparent market is likely to attract further interest, both locally and internationally.