After Hong Kong’s new encryption policy, banks are not cooperating with account opening. Regulatory agencies are pressuring multiple banks.

Hong Kong's new encryption policy has caused banks to stop cooperating with account opening due to regulatory pressure.

Edited by: Felix, BlockingNews

After the crypto market crashed by $1.5 trillion in 2022 and well-known companies like FTX went bankrupt, the crypto industry faced criticism from regulatory agencies around the world, including the SEC’s recent lawsuits against Binance and Coinbase. Meanwhile, Hong Kong, which officially launched cryptocurrency trading platform applications on June 1st, is seen as a crypto-friendly destination. Hong Kong Legislative Council member Wu Chi-wai even said that global virtual asset trading platforms, including Coinbase, are welcome to apply for compliance platforms in Hong Kong. However, crypto companies have faced difficulties in obtaining banking services in Hong Kong due to strict KYC and anti-money laundering rules.

On June 15th, according to the Financial Times citing sources, the Hong Kong Monetary Authority questioned why UK and Chinese banks were not accepting cryptocurrency exchanges as customers, including putting pressure on HSBC, Standard Chartered, and Bank of China to accept cryptocurrency exchanges as customers. In a letter to banks on April 27th, the Hong Kong Monetary Authority stated that “due diligence on potential customers should not ‘create undue burdens,’ especially ‘for those who have set up offices in Hong Kong to explore opportunities here.'”

In response to the questioning, an HSBC spokesperson said, “We engage with virtual asset participants in active dialogue, exchanging views on a range of topics including but not limited to account opening. We continue to monitor policy and developments in this emerging industry in Hong Kong closely.” Standard Chartered said it was having “regular dialogue” with regulators on various topics. Bank of China declined to comment.

It is reported that banks and payment settlement merchants have had difficult relationships with global crypto companies. Last year, some payment settlement merchants cut off services to local exchanges in India. Although there is no ban on crypto customers in Hong Kong, banks seem reluctant to participate in the industry for fear of facing legal action in case of fraud.

Faced with the banks’ concerns, Hong Kong is actively engaged in dialogue. On June 16th, Bloomberg reported that the Hong Kong financial regulator had convened banks, crypto platforms, and other industry participants together on Monday of this week to discuss how to address the ongoing challenges faced by crypto companies in opening bank accounts and to push banks to provide services to virtual asset companies. “The HKMA encourages banks not to be afraid, traditional banking thinking presents resistance,” said one source. A spokesperson for the Hong Kong Monetary Authority said that the central bank “maintains close dialogue with the banking industry and other stakeholders on various topics from time to time.”

According to reports, this is the second meeting since late April that Hong Kong regulators have pushed for banks to get more involved in the crypto industry. Earlier, the Hong Kong Monetary Authority held a roundtable with the banking industry and some virtual asset-related institutions to communicate directly about “account opening difficulties.” About 20 banks and a similar number of cryptocurrency-related companies participated in the roundtable to address the needs of the banking industry. In response to the meeting, a spokesperson for the Monetary Authority said in an email, “Our general practice is not to confirm, deny or comment on such meetings.”

At a time when the US and other countries are cracking down on the crypto industry, Hong Kong’s recent questioning and meetings not only send a positive signal, but also aim to build a “global crypto center” with all its might. On June 1, the Securities and Futures Commission of Hong Kong (SFC) issued the “Guideline on the Application of Virtual Asset Trading Platform Operator” which officially came into effect. By issuing VSP licenses for trading virtual assets, it hopes to create a more standardized and transparent crypto asset trading order. Whether Hong Kong can become a global crypto “holy land” in the future is unknown, but it seems to be moving in that direction at the moment.

Related reading: Multi-dimensional interpretation of Hong Kong’s new rules for virtual assets: The unexpectedly elastic regulatory framework will be dynamically adjusted according to the actual situation in the future.

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