HKMA Steps Up Pressure for Banks to Accept Crypto Companies as Clients

Hong Kong’s financial regulators will be holding a second meeting with stakeholders from the banking and cryptocurrency industries to address the challenges crypto companies face in accessing banking services in the city, people familiar with the matter told Bloomberg on June 15, 2023.

The meeting, scheduled to take place within the next two months, will seek to persuade banks to offer services to crypto firms in the city and will be the second gathering of the sort since May.

At the first meeting last month, the Hong Kong Monetary Authority (HKMA) questioned some of Hong Kong’s biggest lenders, including HSBC, Standard Chartered and Bank of China, on why they were not accepting crypto exchanges as clients, three people with knowledge of the matter told the Financial Times (FT) last week.

A letter sent to the banks by the HKMA on April 27, 2023 and seen by the FT claims that due diligence on potential customers should not “create undue burden”, particularly “for those setting up an office in Hong Kong to look for the opportunities here”.

Hong Kong market regulators urged banks to support virtual asset businesses with their “legitimate need for bank accounts” which would not only to enable them to rent offices in the city, but also pay local staff.

About 20 banks and a similar number of crypto-related firms attended the May roundtable, reports Bloomberg.

The move showcases the struggle crypto firms in Hong Kong face in gaining banking services because of banks’ reluctance and concerns over money laundering and other illegal activities.

A person with knowledge of the discussion told the FT that “HKMA encouraged the banks to not be afraid”, noting however that “there is resistance from a conventional banking mindset … we are seeing some resistance from senior executives at traditional banks.”

Hong Kong is seeking to become a global hub for the crypto industry, a position it had historically held but which diminished in the wake of Beijing’s crypto crackdown.

Hong Kong legislative council member Johnny Ng even invited earlier this month global virtual asset trading operators to come and register in the city after Hong Kong rolled out its long-awaited licensing regime for so-called virtual asset trading platforms (VATPs).

Johnny Ng

Johnny Ng

Ng mentioned Coinbase in particular despite the exchange currently being sued by the US Securities and Exchange Commission (SEC).

Hong Kong’s Securities and Futures Commission reportedly met with Gemini, another crypto exchange that’s being sued by the US SEC, last week. Co-founder Tyler Winklevoss tweeted on June 23, 2023 that “Hong Kong is ready to lead in crypto” and that “many [important] industry players [are] making Hong Kong home and a vibrant ecosystem is developing here.”

In the midst of Hong Kong push to become a globally renowned crypto hub, the government established a Web 3.0 task force led by Financial Secretary Paul Chan.

In addition to that, HSBC enabled customer access to crypto-linked exchange-traded funds (ETFs). The ETFs were listed on HSBC Hong Kong’s stock trading mobile app Easy Invest on Monday, offering traders exposure to bitcoin and ether futures based on derivative contracts that trade on commodity exchanges.

A representative from HSBC Hong Kong told crypto-focused media outlet Decrypt that the specific offerings are CSOP Bitcoin Futures ETF, CSOP Ethereum Futures ETF, and Samsung Bitcoin Futures Active ETF.

The US SEC filed lawsuits against both Coinbase and Binance earlier this month, and against Gemini in January, alleging that the three companies violated federal securities laws.

These developments come at a time when regulators around the world are clamping down harder on large crypto businesses in the aftermath of the FTX collapse.

The crypto sector faced further turbulence last week when two crypto lenders from South Korea halted withdrawals abruptly. Haru Invest, a company promising up to 12% in annual interests on its digital asset savings products, paused withdrawals and deposits on June 13, 2023, citing issues with service partners. After halting withdrawals, the firm closed its office and all company officials disappeared, CoinDesk Korea reported on June 22, 2023.

Delio, another South Korean lending platform that offered a maximum of 10% in annual interests, suspended withdrawals and deposits on June 14, 2023, citing Haru Invest’s abrupt decision as the reason and hinting at a contagion effect. Delio had reportedly deposited a certain amount of virtual assets in Haru Invest.

Hundreds of Haru Invest and Delio customers are reportedly preparing a class-action lawsuit against the two companies, the Korea Times reported on June 16, 2023.


Featured image credit: edited from Freepik

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