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  • J Huang and M Bacina

Hong Kong grants first retail licences to crypto exchanges

On 3 August 2023, local cryptocurrency firms HashKey Exchange and OSL Digital Securities Ltd received Hong Kong's first crypto exchange licenses to serve retail clients.

Hashkey and OSL were already the only two local exchanges licensed by the Securities Futures Commission (SFC) to provide virtual asset trading services to professional investors, under Hong Kong's previous opt-in licensing regime. On 3 August, they both announced that their existing licences had been upgraded to allow them to offer their services to retail investors.

HashKey said in its announcement:-

As an existing Type 1 and Type 7 licenses holder, HashKey Exchange successfully underwent a simplified process to obtain the license upgrade ... to expand its business scope from serving professional investors to retail users, fulfilling market demand for a licensed platform that offers users a safer and simpler process for buying and storing cryptocurrencies.

Earlier this year, HashKey announced its plan to introduce a regulated exchange in the second quarter to serve retail customers and said it planned to raise funds at a $1 billion valuation to capitalise on Hong Kong's re-emergence as a potential crypto hub. The company is hoping to sign up one million retail users by the end of this year. It is currently partnering with top-tier banks in Hong Kong, while planning to launch a liquid crypto fund in September.

OSL also put out a press statement saying that,

Effective immediately, OSL Digital Securities offers retail investors the ability to register on its platform and access digital asset products, starting with the popular cryptocurrencies bitcoin (BTC) and ethereum (ETH)

Gary Tiu, the head of regulatory affairs of OSL said,

This is a monumental moment not only for OSL but for the broader crypto market.

He added that the move showed virtual asset markets can be "regulated and safe".

It is important to note that the upgraded licenses of HashKey and OSL are not directly part of Hong Kong's latest virtual asset service provider (VASP) licensing regime launched on 1 June, which allows exchanges approved by the SFC to service retail customers. Currently, no exchanges have received a license under the new regime, though they are permitted a grace period of one year to comply with the new SFC guidelines or exit the market.

OKX and Huobi, founded in mainland China, are two of the major players publicly announcing they are applying for a VASP licence. The exchanges have also already started to sign up retail customers in the city, while working on complying with the new guidance rules in order to receive their licences.

South China Morning Post reported that certain exchanges had already been fast-tracked by the SFC and had received “in principle” approval under the new regime, though official announcements were expected to take several months.

While aimed at attracting more crypto business and regaining its status as Asia's crypto hub, Hong Kong’s new VASP regime is also targeted at mitigating risk following a tumultuous 2022 that saw a number of high-profile exchanges collapse, such as the FTX exchange. The VASP regime requires exchanges to comply with a broad range of requirements and standards, including user onboarding, asset custody, cybersecurity and corporate governance.


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