Hong Kong regulator urges banks to accept crypto clients
Hong Kong banks are wary of the regulatory blowback in case their crypto clients are found to be involved in money laundering.
The Hong Kong Monetary Authority (HKMA) is encouraging banking giants to accept crypto exchanges as clients, the Financial Times reported on June 15.
While no restrictions hold Hong Kong banks back from accepting crypto clients, banks are wary of drawing regulatory scrutiny in case their clients are found ed in any criminal activities, the report said. The implosion of FTX and the alleged mishandling of its client funds have only made banks more cautious.
Under the circumstances, HKMA is trying to motivate banks to take on crypto clients to further its aim of turning Hong Kong into a global crypto hub.
The regulator also told banks in a letter on April 27 that the due diligence procedures of the banks should not impose an “undue burden” on crypto firms seeking to establish a base in Hong Kong.
Niel Tan, chair of the FinTech Association of Hong Kong, said:
“Everything has been done on the government’s side to encourage these banks to facilitate the opening of banking services to the sector.”
In line with its aim of providing clear regulations, Hong Kong introduced a new licensing regime for crypto exchanges offering services to retail investors on June 1. The HKMA is also looking to introduce comprehensive rules for stablecoins over the next 18 months.
Additionally, exchanges in the U.S. are searching for more crypto-friendly destinations as they face increased regulatory scrutiny, with Hong Kong vying for the business. Just last week, after the U.S. Securities and Exchange Commission (SEC) sued Binance and Coinbase, pro-Beijing lawmaker Johnny Ng invited Coinbase and other exchanges to set up offices in Hong Kong.
Banks remain wary of crypto firms.
During a meeting last month, the HKMA raised inquiries with HSBC, Standard Chartered, and the Bank of China regarding their reluctance to onboard crypto firms as clients; three undisclosed sources told FT.
An unnamed source familiar with the discussion told FT that HKMA “encouraged the banks to not be afraid.” But the source added:
“There is resistance from a conventional banking mindset . . . we are seeing some resistance from senior executives at traditional banks.”
As per the report, banks are trying to remain open to encouragement from the regulator to support crypto exchanges. At the same time, however, they are keeping an eye on the developments of the regulatory proceedings in the U.S.
The banks want to support the development of the crypto industry in line with Hong Kong government policy. But they are concerned about getting in hot water with the regulators in case of anti-money laundering or know-your-customer issues with the crypto exchanges.