Crypto exchanges may have to pay as much as $20 million for an operating license in Hong Kong under the city’s new regulatory regime, which came into effect in June. According to three individuals familiar with the application process, the cost of consideration under the new rules could range from $12 million to $20 million. This includes operating costs leading up to the license and payments for necessary vendors for the application itself, such as consultants, lawyers and insurance providers.
We will have this natural selection of players in the market, said Alessio Quaglini, CEO of Hex Trust. The 2017 days of opening up exchanges based out of small European countries doesn’t really hold the same as it did back then, said Will Corkin, Co-Founder of SOMA.finance.
The new licensing regime for virtual asset trading platforms gives exchanges with a presence in the city one year to apply for fresh approval or leave. OSL and HashKey, who held licenses under the previous opt-in regime, have obtained approval under the new regime, and are now allowed to serve retail investors. Companies will have to invest in capabilities that ensure segregation of client funds, safe custody of assets, pay for smart contract audits and overall corporate governance.
Hong Kong’s residents have the implicit go-ahead to trade virtual assets, and the city’s leaders have mentioned Web3 in the budget, formed a Web3 task force, and InvestHK is present at almost every industry event. The hope is that once platforms begin to obtain licenses, investors can move fiat currency from banks onto trading platforms, trade in fairly liquid markets, and have exposure to virtual assets.
Derivatives, the largest money-maker for exchanges, are still off the cards. The regime will only permit investors to trade large-cap coins. Tokens will need to be listed in two acceptable indices, and go through due diligence. They will need to have a one-year track record. Crypto exchanges are required to have ties to a bank in order to apply for the license, and must handle custody themselves.
Finding the right insurance and even a provider has also been an issue for applicants. Stablecoins are not permitted so far.