Hong Kong to License 11 VASPs, South Korea to Tighten Stablecoin Rules

A few years ago, Hong Kong was regarded as the friendliest jurisdiction for digital asset businesses. However, a $200 million local exchange scam

Hong Kong is set to issue licenses for nearly a dozen virtual asset service providers (VASPs) by the end of the year, according to the city’s regulator.

This comes as part of a broader effort to regulate the digital asset industry in Hong Kong, following a $200 million local exchange scam that prompted regulators to become more stringent.

The Securities and Futures Commission (SFC) has been conducting on-site visits and reviews of 11 VASP license applicants, with the aim of issuing them licenses this year, SFC CEO Julia Leung told local media outlet HK01 in a recent interview.

Among the applicants are Hong Kong Digital Asset EX Limited, Whalefin Markets, Panthertrade Limited and DFX Labs Limited, according to the SFC website. Notably, none of the global exchanges are on the list, despite Hong Kong being one of their biggest target markets in Asia.

Some exchanges, including Binance, OKX, Gate.io and HTX, withdrew their applications earlier this year. Local media outlets reported that the withdrawals were due to a stipulation by the SFC that they could not serve Chinese customers under the new licensing regime.

“Applicants who do not meet the requirements will lose their qualifications for licensing, while applicants who meet the requirements will be granted a license conditionally,” Leung said, without revealing the identities of the applicants.

The SFC began accepting applications for VASP licenses in August last year, following the enactment of the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill in June.

The new licensing regime is designed to bring digital asset exchanges and other service providers under the SFC’s regulatory ambit, following the collapse of several local exchanges in recent years.

Under the new regime, VASP license applicants are required to obtain a separate permit to service Hong Kong investors. Haskey and OSL became the first two exchanges under the new regime to acquire this license, and HKVAX joined them a week ago.

Despite cultivating the image of a digital asset hub, Hong Kong is quite restrictive on retail traders. Before August, retailers valued at less than $1 million could only buy and sell BTC and ETH, but their options have broadened slightly to four tokens. Professional investors have a much bigger selection of tokens available to them.

Meanwhile, South Korea is tightening its laws on stablecoins to plug any crime loopholes in cross-border funds transfers, with proposals being reviewed to extend stringent foreign exchange regulations to transactions involving fiat-pegged stablecoins.

The country's Ministry of Economy and Finance (MoEF) revealed the proposals on Friday, with the aim of bolstering oversight over crypto funds flowing in and out of the country.

The proposals are being reviewed by the Financial Services Commission (FSS), which will prioritize stablecoins in the next phase of the country’s Virtual Asset User Protection Act.

The FSS will initially focus on stablecoins pegged to the country’s won before extending to those pegged to the U.S. dollar and other foreign currencies.

In South Korea, most local exchanges offer their own stablecoins that are pegged to the won, but these are limited to the exchange ecosystem. Some companies have also attempted to launch broader won-pegged stablecoins with limited success.

However, like in most other countries, stablecoins are gaining traction for cross-border fund transfers, which poses a challenge for the government as they are harder to track than traditional methods.

“International trades in stablecoins are not reflected in official statistics, which could create a loophole in the government’s policies,” said Hwang Suk Jin, a professor at Dongguk University in Seoul.

Jin joins many other Korean economic experts, including Bank of Korea Governor Rhee Chang-yong, who fear that in times of economic crises, capital could flee the country as investors convert their won-based assets to foreign currency-pegged stablecoins.

The FSS intends to consult other jurisdictions before settling its stablecoin rules, including the European Union and neighboring Japan.

The latter is strict with stablecoins and only allows banks, trust companies and fund transfer services to issue these tokens.

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