Hong Kong pressures HSBC, Standard Chartered, and Bank of China to adopt crypto exchanges. Is Hong Kong the next crypto hub?
The Hong Kong Monetary Authority (HKMA) has pressured banks such as HSBC, Standard Chartered, and Bank of China to engage with cryptocurrency clients. During a meeting last month, the HKMA questioned why the banks had not accepted cryptocurrency exchanges as clients, citing people familiar with the matter. The HKMA told banks that due diligence on such potential customers should not “create undue burden,” particularly “for those setting up an office in Hong Kong to look for opportunities here.” However, banks may be reluctant to accept exchanges on the basis that they could be prosecuted if the exchanges are used for illicit purposes. The FT report said that “HKMA encouraged the banks to not be afraid,” citing a person familiar with the discussions.
“There is resistance from a conventional banking mindset . . . we are seeing some resistance from senior executives at traditional banks.”
The call for increased involvement in the crypto industry follows Hong Kong’s move to establish itself as a major global center for cryptocurrency, despite high-profile and damaging crashes such as that of FTX. Pro-Beijing lawmaker Johnny Ng has invited exchanges such as Coinbase to set up in the city, despite recent legal action against some of the world’s largest crypto exchanges by the US Securities and Exchange Commission (SEC). Banks are now being forced to strike a balance between supporting crypto while also heeding concerns over anti-money laundering and know-your-customer (KYC) regulations. One senior executive stated that banks are “having to tread a fine line between on the one hand getting encouragement to support crypto and exchanges, but on the other hand being aware of the US situation.”
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Hong Kong Aims to Become a Global Crypto Hub
While Hong Kong’s history as a crypto center suffered in the wake of a crackdown by Beijing, the government has recently shown a clear desire to rebuild its position as a hub for the industry. Earlier this month, the city’s financial regulator implemented its new regulatory framework for crypto on the first of June. Under the new rulebook, the city-state will allow retail investors in the city to trade specific “large-cap tokens” on licensed exchanges, given that safeguards such as knowledge tests, risk profiles, and reasonable exposure limits are put in place. The Securities and Futures Commission (SFC) of Hong Kong will also start providing licenses to crypto exchanges. However, not everyone is optimistic about Hong Kong’s new crypto rules. Crypto pioneer Bobby Lee has warned that Hong Kong’s ambition to become a crypto hub might not be sustainable. Lee claimed that officials who let exchanges obtain a license may have overblown expectations for connecting with mainland China as digital asset trading remains banned in China. He predicted that the city might once again change its stance toward crypto in three to five years and announce a ban on the industry.