Hong Kong Strives to Establish Itself as Premier Global Hub for Cryptocurrencies

Hong Kong strives to establish itself as a premier global hub for cryptocurrencies but faces challenges in accessing banking services and regulatory concerns. Persistent difficulties and cautious behaviour from banks hinder ambitions despite ongoing dialogues between regulators and industry stakeholders.

In an effort to position Hong Kong as a prominent global hub for cryptocurrencies, regulators in the city are making preparations for their second meeting within two months.

The objective of this upcoming meeting is to convince banks to offer their services to digital asset firms. This will help foster a supportive environment for these firms, as Hong Kong aims to solidify its position as a leading destination for international cryptocurrency activities.

Sources familiar with the matter, who requested anonymity due to the sensitive nature of the topic, revealed that the top financial regulators have called for a meeting on Monday. The meeting aims to bring together banks, crypto platforms, and other participants in the industry.

The main objective of the meeting is to tackle the ongoing difficulties that crypto companies encounter when attempting to establish bank accounts.

This meeting, which follows a similar gathering since late April, emphasizes the ongoing struggle for crypto firms to access banking services. The upcoming meeting will specifically cater to those who were not present at the initial dialogue.

In an effort to assist digital asset businesses in securing bank accounts, Hong Kong market regulators released a circular at the end of April, encouraging banks to extend their services to these entities.

Approximately 20 banks and a similar number of crypto-related firms participated in the roundtable discussion on banking needs, according to the Hong Kong Monetary Authority (HKMA).

Persistent Challenges in Banking Services for Crypto Firms Hinder Hong Kong’s Ambitions

Hong Kong’s aspirations as a prominent player in the crypto industry face obstacles despite the implementation of a new licensing system for crypto exchanges. These hurdles include difficulties in accessing banking services, a scarcity of skilled professionals, and persisting challenges within the industry.

Crypto firms have encountered difficulties in accessing banking services primarily due to strict know-your-customer and anti-money laundering regulations. These challenges are not limited to Hong Kong, as the global crypto industry faces scrutiny from regulators, including the US Securities and Exchange Commission (SEC), resulting in cautious behavior from lenders.

In 2022, the digital asset market experienced a significant decline of $1.5 trillion, with several prominent firms collapsing. Recently, the US initiated lawsuits against Binance Holdings Ltd. and Coinbase Global Inc., further intensifying the pressure on lenders.

The turmoil also unfolded in the South Korean crypto industry, with two platforms suspending withdrawals within a 24-hour period.

Although the HKMA spokesperson refrained from providing specific comments regarding the upcoming meeting, they did mention that the de facto central bank has consistently maintained an active and ongoing dialogue with the banking industry and relevant stakeholders. These discussions cover a wide range of topics of importance and interest to all involved parties.

Similarly, the spokesperson for the Securities and Futures Commission, responsible for regulating crypto exchanges, also chose not to provide any comments.

Banks in Hong Kong Remain Cautious About Onboarding Crypto Clients, Reflecting Regulatory Concerns

It was previously reported that certain banks in Hong Kong were reluctant to onboard crypto clients, prompting the financial regulator to emphasize the importance of banks following a risk-based approach in managing individual customer risks.

This issue of crypto companies facing banking challenges is not new, as a few months ago, it was revealed that some of China’s state-owned banks in Hong Kong were seeking crypto business, but potential clients found it extremely difficult to establish partnerships.

Historically, Hong Kong had a reputation as a money laundering hub for organized crime, resulting in significant fines for HSBC. As a consequence, banks in the region have adopted a more conservative and risk-averse approach.

Understandably, banks are hesitant to engage with the crypto industry, given the regulatory actions taken against major players like Binance and Coinbase by supranational authorities like the Securities and Exchange Commission (SEC) and CFTC.

This caution extends beyond Binance and Coinbase, as any bank in Hong Kong could potentially face regulatory consequences if US authorities target an exchange that is legally operating in Hong Kong but offers USD products. This situation has made banks wary of accepting such exchanges as clients.

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