Virtual asset services providers (VASPs) in Hong Kong are bracing themselves for the jostle for licensing in the region, spending millions of dollars to fulfill application requirements.
Recent data shows that VASPs are spending between $2.55 million and $25.5 million to meet Hong Kong’s new licensing requirements. Firms interested in operating in the city-state are beefing up their staff strength while building infrastructure from scratch in line with the Securities and Futures Commission (SFC) of Hong Kong.
“Since traditional financial institutions have no relevant prior infrastructure and have gone from zero to one in various aspects such as products and teams, the cost associated with VASPs has been very high,” said one industry expert. “However, even for an experienced cryptocurrency institution, the cost of obtaining a license is not cheap.”
One major expense burning a hole in the pockets of Web3 firms in Hong Kong is the shortage of executives (ROs) with sufficient experience in digital assets, leading to a salary hike.
“RO is a relatively difficult problem to solve. It cannot be solved by capital,” said Darin Chen, head of BitMart Hong Kong. “RO needs to have trading experience and financial management experience and needs to meet the requirements of the Securities Regulatory Commission, as well as the number of years.”
Another factor for the high cost of obtaining a license is the requirement for service providers to set up a physical office complex in Hong Kong. Data from Knight Frank indicate that the average property prices in Hong Kong are the highest in the world, surpassing New York and London.
Intending exchanges are also expected to accumulate a certain number of users and digital currency trading volume and have a reputable Hong Kong law firm on retainer to be conferred with full licenses. To meet this requirement, VASPs have been splurging on advertisements to increase their reach among residents, with OKX Hong Kong racking up 8,000 users.
Hong Kong is the prize for VASPs
Despite the steep costs, firms say clinching a Hong Kong regulatory permit offers several benefits that outweigh the costs. Hong Kong has over seven million residents, with a large chunk being active investors in digital assets while serving as a base to expand into Southeast Asia.
Another reason for the scramble for licensing is Hong Kong’s status as a global financial center, capable of providing firms with “compliance capital” in other jurisdictions. Aside from a deep pool of potential customers, Hong Kong administrators have unveiled several initiatives to ensure a thriving digital currency ecosystem, including incubation hubs and Web3 funds.
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