Hong Kong’s New Crypto License Could Cost Exchanges a Pretty Penny

Crypto exchanges may have to shell out 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.

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.

So far, exchange platforms OSL and HashKey, who held licenses under the previous opt-in regime, have obtained received approval under the new regime, and are now allowed to serve retail investors.

However, three individuals familiar with but not allowed to speak publicly on the application process told CoinDesk that obtaining a new license could cost anywhere between $12 million and $20 million.

Their estimates took into account operating costs leading up to the license and payments for necessary vendors for the application itself, including consultants, lawyers and insurance providers.

OSL and HashKey are part of larger financial services groups and may have the funds to spare, but the cost of consideration under the new rules will be prohibitive for many firms.

Licensing consultants can charge up to $1 million to advise companies on the application, a person familiar with the matter said. Exchanges are required to maintain a paid-up share capital of 5 million Hong Kong dollars ($640,000), and liquid capital of at least $380,000. They must hold liquid assets equivalent to at least a year of operating expenses, not counting virtual assets.

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. Before onboarding investors, firms will need to assess their knowledge of virtual assets.

Firms must also have a local presence with seed phrases and private keys (with backups) stored in Hong Kong. They must hire compliance officers known as licensed responsible officers (ROs), to make sure the business meets the regulatory requirements, and each applicant is required to have at least two ROs. ROs typically charge a premium for their services due to high demand.

“We will have this natural selection of players in the market,” Alessio Quaglini, CEO of Hex Trust, told CoinDesk. Hex Trust is planning to apply for a Hong Kong…