How to Obtain a Hong Kong Crypto Exchange License: A Step-by-Step Process 

• Cryptocurrencies are rapidly transforming the finance industry. Hong Kong has recently emerged as a global financial hub and has become a chosen destination for crypto entrepreneurs because of its powerful financial structure and secure business environment. The city’s take on cryptocurrency is constantly under evolution with regulators such as the Securities and Finance Commission taking steps to oversee the industry. It is expected that the cryptocurrency market in Hong Kong is going to generate a revenue of $68.8 m in the year 2025, making it crucial for crypto entrepreneurs to get a Hong Kong crypto exchange license. So if you want to register a company in Hong Kong, acquiring a Hong Kong cryptocurrency license is the foremost step. The following blog outlines the step-by-step process of attaining a Hong Kong Crypto Exchange License.  

Legal framework for Crypto Exchange in Hong Kong 

• Hong Kong has set up a detailed regulatory framework to manage crypto assets. The Securities and Futures Commission (SFC) is the key regulator that plays a significant role in overseeing the crypto industry. In June 2023 a new licensing system for Virtual Asset Service Providers (VASPs) was introduced. This regime focuses on regulating crypto exchange and other service providers and compares to the Anti Money Laundering (AML) and Counter Financing of Terrorism (CFT) measures to protect consumers and maintain the integrity of the market.  

Specific Requirements for a Crypto Exchange License 

Register a company 

This process consists of: 

• Selecting a name and structure for the company. Ensure that the name is unique and also adheres to Hong Kong’s naming regulations.  

• Apply for the Business Registration Certificate from the Inland Revenue Department within one month of incorporation.  

• Provide information on the shareholders and board of directors.  

Meet eligibility criteria 

• Directors- Directors of a company can be of any nationality and should be at least 18 years old. Directors shouldn’t be bankrupt or have previous convictions.  

• Shareholders- At least one shareholder is required, and a maximum of 50 shareholders are required for private companies. A foreigner can also be the director and shareholder of the company.  

• Capital Requirements- There is no minimum capital requirement for registering a company in Hong Kong. While most of the companies began their business with a nominal share capital of around HKD 10,000.   

Create your application 

• For acquiring a Hong Kong crypto exchange license create a well-documented application. For this, you need to prepare: 

Business Plan and Operational Framework  

• A business plan consists of a brief overview of your company showcasing its mission, vision, and goals. Provide a summary of the services provided and a comprehensive description of the business model, whether it’s a trading platform or brokerage. The plan should also explain how the company is going to operate and the types of cryptocurrencies it supports. Lastly, the plan should provide insights about the crypto market in Hong Kong and globally. Recognize key target consumer segments such as retail investors, and institutional clients along with details of competitor’s business in the market and company’s unique selling position.  

• The operational plan should include an organizational chart providing the roles and responsibilities of personnel. It should also offer the technology used such as trading platform, security and data protection protocols. The plan should also provide internal audit functions to ensure adherence with the regulatory framework and consistently report to the SFC regarding the operational performance as well as compliance status.  

Risk management  

• Follow the protocols laid out by the Securities Future Commission (SFC) for cyber security and managing risks. Implement strong encryption protocols to protect the sensitive information of the consumers. Also, incorporate firewalls and intrusion detection systems to monitor incoming and outgoing networks.  

AML and KYC Policies 

• Incorporate robust processes to verify the identity of the consumers during the process of onboarding. This consists of gathering government-issued documents for identification purposes such as passports and national IDs, along with proof of address. For high-risk consumers, you need to conduct due diligence which consists of gathering additional information regarding the consumer’s source of funds. You also need to develop a comprehensive record system to hold the consumer identification documents, transactional histories, and communication-related to the AMC/KYC process for a minimum period set up by law (usually five years).  

Submitting the Application  

Assemble Documents 

• Assemble all your documents to submit the application to SFC. This should consist of business activity, office details, employee data, risk management protocols, financial forecasts for up to 5 years, legal entity information, and AML/CFT regulations.   

Complete the form  

• Fill out the application form that is provided by the SFC, and make sure that all the sections are completed.  

Submit the application 

• Submit your application through the medium of SFC’s WINGS platform. This consists of uploading all the necessary documents and forms digitally.  

Pay Fees 

• SFC has specified application fees for the process. Pay this fee to ensure there are no dues.  

Wait for Review 

• After the application is submitted, SFC reviews your application. It usually takes 3 to 5 months for your application to get reviewed based on how completed your documents are, and whether they are adhering to the regulatory standards.  

Receive your License 

• If your application gets approved, you will get a cryptocurrency exchange license. This will allow you to operate your business legally in Hong Kong.  

Post-Application Requirements  

Regular Reporting  

• Licensees should submit monthly reports of their business to the SFC providing all the business activities information. This mainly consists of transaction volumes, the number of customers, and any major operational change.  

Human Resource Training  

• Businesses should regularly train their employees regarding the best practices for cybersecurity, and risk management strategies. Through the means of awareness initiatives, organizations can foster a culture of adherence.  

Risk Management  

• The company should maintain effective risk management protocols that focus on operational, cybersecurity, and financial risks. Ensure that your business is following the cybersecurity protocols and conducts regular audits of the security system.  

Operational Conditions 

• Services should not be provided to professional investors unless they have been approved by the SFC. Licensees should also have written approval from the SFC regarding any new services or if there are any changes to the current services and activities.  

• Following these post-application compliance regulations can help exchanges maintain their operational license while also ensuring they are meeting the regulations set up by the SFC.  

Conclusion  

• Acquiring a crypto exchange license is a tedious job but is crucial for companies to operate in crypto sector of Hong Kong. Businesses can establish their footprint in the industry by regularly following the SFC’s guidelines. For expert guidance regarding acquiring your business license contact Tetra Consultants and our team of experts will help you to navigate the business landscape of Hong Kong.  

• Contact us and our team will get back to you within 24 hours.