Although there are currently no restrictions preventing Hong Kong banks from accommodating crypto clients, the banks are exercising caution to avoid regulatory scrutiny in the event that their clients engage in criminal activities.
However, the recent collapse of FTX and the alleged mishandling of its clients’ funds have reportedly amplified banks’ concerns and made them even more hesitant. Given the circumstances, the HKMA actively encourages banks to embrace crypto clients in line with its objective of transforming Hong Kong into a prominent global cryptocurrency hub.
Furthermore, in a letter dated April 27, the regulator advised banks that their due diligence procedures should not excessively burden crypto firms seeking to establish a presence in Hong Kong.
According to Niel Tan, the chair of the FinTech Association of Hong Kong, the government has taken significant steps to encourage banks to facilitate the provision of banking services to the cryptocurrency sector.
In line with its commitment to establishing clear regulations, Hong Kong implemented a new licensing framework on June 1, specifically targeting crypto exchanges offering retail investors services. Furthermore, the HKMA is actively working towards introducing broad regulations for stablecoins within the next 18 months.
More Crypto Firms Troops Into Hong Kong Crypto Market
As exchanges in the United States encounter heightened regulatory scrutiny, they explore more crypto-friendly jurisdictions. Hong Kong is positioning itself as a viable option for these exchanges.
Just last week, following lawsuits by the U.S. SEC (Securities and Exchange Commission) against Coinbase, and Binance, Johnny Ng, a pro-Beijing lawmaker, extended an invitation to Coinbase and other exchanges to establish offices in Hong Kong.
Banks are maintaining a cautious stance towards crypto firms. According to undisclosed sources cited by FT, during a meeting last month, the HKMA raised concerns with the Bank of China, HSBC, and Standard Chartered, regarding their hesitancy to onboard crypto firms as clients.
An anonymous source familiar with the discussion revealed that the HKMA encouraged the banks to overcome their apprehension. However, the source also noted that resistance stems from a traditional banking mindset, with some senior executives at conventional banks expressing reluctance.
While the banks are receptive to the regulator’s encouragement to support crypto exchanges, they are closely monitoring the regulatory developments in the United States. They aim to align themselves with the Hong Kong government’s policy of fostering the crypto industry’s growth.
However, they remain cautious about potential risks related to anti-money laundering and know-your-customer compliance issues that could arise from working with crypto exchanges.
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