Korean Financial Regulator to Inspect Non-Fiat Crypto Trading Platform

OKX Enters Final Stages of Securing VASP License in Hong KongSeychelles-headquartered cryptocurrency exchange OKX is on the verge of securing its virtual asset service provider (VASP) license in Hong Kong, with approval expected as early as June 2024.That’s according to Li Zhikai, OKX’s Global Chief Commercial Officer, who, in a recent interview with Infocast, shed light on the exchange’s preparations, including collaborations with banks and other related technological integrations.Photo by Simon Zhu on UnsplashThe Road to a VASP LicenseObtaining a VASP license in Hong Kong is no easy feat. Regulatory requirements impose a 30% cap on investors’ crypto investments, ensuring they do not risk more than one-third of their net income.Furthermore, the Hong Kong regulator has implemented stringent crypto asset storage protocols, mandating that crypto exchanges securely store 98% of their crypto assets in cold wallets. Additionally, they must provide insurance and compensation arrangements to protect clients’ interests.Cost has been another issue. In June it emerged that Web3 businesses have been shelling out anywhere between 20 million and 200 million Hong Kong dollars ($2.55 million and $25.5 million) in order to see out the licensing application process.Alongside these licensing difficulties, Hong Kong’s Securities and Futures Commission (SFC) issued a warning last month aimed at unregistered crypto businesses engaging in “improper practices” within the Chinese autonomous territory.OKX’s remarkable growthWith OKX having reported growth within the Hong Kong market earlier this year, pointing to the onboarding of over 10,000 new users in just one month, it’s likely that licensing is both worthwhile and necessary for the firm despite the difficulties in obtaining it. In March the exchange established OKX Hong Kong, a local entity, with the primary objective of securing a VASP license and operating as a virtual asset trading platform within the city.Hong Kong’s decision to open its doors to retail investors as of June 1 generated significant interest, with more than 80 foreign and Mainland China-based crypto companies expressing their intent to establish a presence in Hong Kong and obtain local licenses. Among these firms are Gate.io, Huobi, CoinEx, and Interactive Brokers.Expanding global reachNotably, OKX has been actively acquiring licenses in various jurisdictions worldwide as part of its strategic expansion plan. The exchange secured a Minimal Viable Product (MVP) license from the Dubai Virtual Assets Regulatory Authority (VARA) in June. This licensing milestone followed the establishment of a new office at the Dubai World Trade Center by OKX.Before venturing into the Middle East, OKX took steps to obtain a French digital asset service provider (DASP) license in May, aiming to position France as its regional hub in Europe. To facilitate this, OKX established a local subsidiary, OKX France. The application and registration process with the French regulator is expected to enable OKX to operate in full compliance with European regulations.Hong Kong embarked on its journey to become a crypto-friendly jurisdiction over the course of the past 12 months, but particularly so when it unveiled its licensing framework for cryptocurrency exchanges catering to retail customers earlier this year. However, only a handful of platforms, such as HashKey and OSL, managed to secure licenses for offering retail crypto trading services. Others, including Huobi and Gate.io, are still awaiting that regulatory nod.

Abu Dhabi Puts Forward Legal Framework for Decentralized TechAuthorities in Abu Dhabi, the capital of the United Arab Emirates (UAE) as well as an individual emirate within it, have published a proposed legislative framework for distributed ledger technology.©Pexels/redouan khoulassiThe consultation paper, titled “Proposal for a legislative framework for distributed technology foundations” was published earlier this month by the Abu Dhabi Global Market’s (ADGM) Registration Authority.Promoting investor protectionThe document covers a broad spectrum of aspects relative to digital assets and crypto entities, including corporate governance, insolvency and restructuring considerations, and data protection. The ADGM’s objective with the proposed policy is to advance investor protection, improve market integrity and efficiency, and build towards a comprehensive regulatory framework.Specific proposalsMore specifically, the policy would implicate an enhancement in the protection of whistle-blowers who report misconduct relative to ADGM-regulated companies. Under the proposal, new rules would be introduced to ensure that digital asset platforms operate in a fair and transparent manner. A requirement would be placed on regulated companies to disclose detailed information in relation to beneficial ownership and control structures. Furthermore, the policy seeks to bring about an improved dispute resolution process between the stakeholders involved in ADGM-regulated transactions.Building upon an existing frameworkThe Abu Dhabi regulator’s current legal framework is built upon English common law. It has its own financial services regulator, the Financial Services Regulatory Authority (FSRA) which operates independently and is responsible for supervising and licensing financial institutions and market participants. The FSRA takes a principles-based approach, regulating those market actors attempting to maintain financial stability and integrity, promote market competition and innovation and ensure customer protection.ADGM has sought to act on an international basis by signing agreements with regulatory bodies in the UK, Hong Kong and Singapore, in an effort to enable information sharing and cross-border cooperation.Regulatory activityAt a national level, earlier this year the UAE enacted a digital assets regulatory framework. Earlier this week, the UAE also revealed a federal licensing system for crypto companies. In February, work began on a $2 billion initiative to nurture blockchain and Web3 startups via Hub71, the emirate’s tech ecosystem. The initiative provides startups with access to a broad range of support services as well as potential collaborations with government and investment partners.According to the document, “this Consultation Paper is of interest to any persons operating or planning DLT projects, persons engaging in digital asset-related activities and their legal advisors, as well as DLT participants, associations, and stakeholders.”With that, the ADGM is inviting comments and feedback from members of the public on the proposed changes contained within the consultation paper. To aid public comment, the policy document includes a number of questions that it invites stakeholders to consider as they work towards submitting their feedback.Those interested have until May 12 to take the opportunity to submit their comments and views relative to the Abu Dhabi regulator’s proposed framework.

OSL Parent Company Denies Sale PlansBC Technology Group, a Hong Kong-based investment holding company, has firmly denied recent reports suggesting it is exploring the sale of its licensed digital asset business, OSL, for up to HK$1 billion (US$137.3 million).Photo by Nextvoyage on PexelsCompany stock plummetsThis comes in response to a report that emerged via Bloomberg on Monday. The news of the possible sale had a significant impact on the company’s stock, which plummeted by over 22% to HK$3.35 the following day.BC Technology Group, which has been listed on the Hong Kong stock exchange since 2012, is the parent company of OSL. The reports hinted at the possibility of selling off parts of the business, citing undisclosed sources.In response to these rumors, BC Technology Group issued a formal statement to clarify the situation, deeming the article “factually inaccurate and highly misleading.” It vehemently refuted any intention to sell OSL, a key player in the cryptocurrency exchange sector.First licensed exchangeOSL was the first cryptocurrency exchange to be licensed by the Securities and Futures Commission (SFC) in Hong Kong in 2020, initially operated under a voluntary scheme and was limited to serving professional investors. However, the recent licensing requirement broadened its scope, allowing it to cater to retail investors as well, including popular cryptocurrencies like Bitcoin and Ethereum.Both OSL and HashKey had their licenses upgraded this year, enabling them to serve retail investors as per the new policy. However, the reception to this new regulatory framework has been somewhat lukewarm, with only five local exchanges applying for the new virtual asset trading platform (VATP) license. The SFC had to publish a list of applicants following a financial scandal involving the JPEX crypto exchange, which led to over 2,500 complaints and losses totaling approximately HK$1.5 billion.The backdrop of this unfolding situation is Hong Kong’s efforts to establish itself as a significant virtual asset hub. The city announced its ambition to transform into a hub for digital assets a year ago, drawing considerable attention from cryptocurrency exchanges. These efforts included implementing new regulations in June that mandated licensing for cryptocurrency exchanges.Several companies with connections to Hong Kong and mainland China have expressed their intent to obtain a license, potentially taking advantage of Hong Kong’s favorable stance toward virtual assets when compared to mainland China’s strict regulations.High compliance costsNonetheless, high compliance costs in Hong Kong continue to pose a barrier, potentially preventing the city from becoming the primary base of operations for crypto businesses. Industry insiders estimate that the cost of compliance from start to finish can be as high as HK$60 million for a company. Firms have reported that obtaining a trading license in Hong Kong can involve an outlay of between HK$20 million and HK$200 million.As per BC Technology Group’s mid-year report, the company reported a net loss of HK$94.7 million in the first half of 2023. This marked a notable improvement compared to the HK$312.1 million in losses during the same period the previous year. OSL remains a significant source of income for the company.