Hong Kong’s effort to become a center for digital assets is running into problems. There’s growing doubt whether 11 cryptocurrency exchanges will get full licenses. These companies were given the first round of approvals earlier this year.

The Securities and Futures Commission (SFC) of Hong Kong found problems at some platforms that are “considered licensed” during inspections since June. This is according to sources who know about the situation but asked to stay anonymous because the information is private.

SFC Inspections Ensure Exchanges Comply With Rules To Protect Customer Assets

The problems noticed in the inspections are different. Some crypto firms depend too heavily on a small number of executives to look after client assets. Others were faulted for not guarding well enough against cybercrime threats.

The names of the companies that didn’t meet the SFC’s standards were not shared. The inspections are still happening, and the situation could change, an undisclosed source said.

The 11 platforms with provisional status include global names like Bullish and Crypto.com, also Hong Kong-based exchanges such as PantherTrade, HKbitEX, DFX Labs, Accumulus, Bixin.com, YAX, EX.IO, Matrixport HK, WhaleFin. Crypto.com chose not to comment on the inspections, and the other exchanges didn’t reply to Bloomberg News inquiries.

member and spokesperson for the SFC disclosed that the agencies do not speak on individual matters. Anyways the spokesperson said the inspection was supposed to determine if the exchange will comply with the requirements and regulatory rules. The focus was solely on the protection of customer’s assets and the implementation of know-your-client (KYC) processes.

SFC Poised To Revoke Licenses And Halt Client Onboarding

The spokesperson added that if platforms don’t correct serious issues discovered during the inspections, the SFC could either take away their provisional licenses or reject their applications for full licenses.

The exchanges that are currently under review are not allowed to sign up new clients until they receive their full licenses. If their applications are rejected, they will need to resubmit everything from scratch.

SFC Chief Executive Officer Julia Leung expects that full licenses will be given by the end of 2024 to firms that meet all the rules. Right now, only two crypto platforms, HashKey  and OSL, have full licenses in Hong Kong.

Exchanges that were already in business before the licensing system was set up could continue operating while they applied for a license. But if they didn’t apply, they had to shut down by the end of May. So far, 12 companies have withdrawn their applications from the licensing process. These include names like VAEX, OKX, Huobi HK, and Bybit.