Hong Kong was once an epicenter of crypto activity, but it's lost that status amidst a broader clampdown by Chinese authorities on digital assets and the more recent exodus of talent during several years of especially strict Covid-related quarantine measures.
In an effort to regain its standing, the province introduced a new licensing regime this year, betting that it can lure back developers and companies who left for Singapore and elsewhere.
But early returns look shaky. Crypto companies and their lawyers already want changes to the new licensing rules before they've even taken effect, arguing the proposed regime is too stringent and won't attract the caliber of companies needed to meet the government's goal of restoring the city as a digital assets center.
A limited pool of qualifying tokens that exchanges can offer retail investors, onerous cold storage requirements and unclear licensing rules are among concerns that industry members said they would highlight to the SFC in submissions to the consultation, people involved in drafting responses told The Block.
Hong Kong's Securities and Futures Commission first announced the new mandatory licensing regime for crypto exchanges and service providers last month and at the same relaxed a ban on crypto firms targeting retail investors. The planned changes were published as a public consultation, and industry members have until the end of March to respond with feedback.
Hong Kong crypto ambitions
"It is important this regime is workable. There are some things that need tweaking and changing for it to work,'' said William Hallatt, partner at Gibson, Dunn & Crutcher. “It doesn't work well for anyone if you end up with a handful of smaller players.”
Getting the crypto licensing framework right is a key policy area for the city's government. Officials have staked a lot of energy and political goodwill on the asset class and the technology behind it, in an effort to win back the industry. Senior leaders regularly tout the city's crypto ambitions in meetings and at conferences. Partly, the sense of urgency comes from a realization there is still a chance to grab the crown as a respected regulated digital asset center while other markets, notably the U.S., struggle to work out how they want to handle the industry.
Just this week, Christopher Hui, Secretary for Financial Services and the Treasury, told the Aspen Digital Web 3 summit that 80 crypto service providers had shown interest in operating in Hong Kong since the new rules were proposed in late February.
A successful regulatory regime would see crypto's development story go full circle given China and Hong Kong-based players were once leaders in the ecosystem until Beijing started clamping down in the late 2010s.
"The public consultation is ongoing and the SFC will consider all views received and publish the consultation conclusions in due course," a spokesman for regulatory agency said.
Among firms to publicly say they want to apply for the new license are BTSE, Huobi,