The Hong Kong Monetary Authority (HKMA) is encouraging banking giants to accept crypto exchanges as clients, the Financial Times reported on June 15.
While there are no restrictions preventing Hong Kong banks from accepting crypto clients, banks are hesitant to monitor regulatory oversight in case their clients are caught engaging in criminal activity, the report said. The implosion of FTX and the alleged misuse of its clients’ funds has only made banks more cautious.
Under these circumstances, HKMA is trying to motivate banks to take on crypto clients to achieve its goal of making Hong Kong a global crypto hub.
The regulator also told banks in an April 27 letter that the banks’ due diligence procedures should not place an “unnecessary burden” on crypto companies seeking to establish a base in Hong Kong.
Niel Tan, President of the FinTech Association of Hong Kong, said:
“Everything has been done by the government to encourage these banks to open up banking services to the sector.”
In line with the goal of providing clear regulation, Hong Kong introduced a new licensing regime on June 1 for crypto exchanges that offer services to retail investors. The HKMA also plans to introduce comprehensive rules for stablecoins in the next 18 months.
In addition, exchanges in the US are looking for more crypto-friendly destinations as they face more regulatory scrutiny, with Hong Kong competing for the company. Last week, after the US Securities and Exchange Commission (SEC) sued Binance and Coinbase, pro-Beijing legislator Johnny Ng invited Coinbase and other exchanges to set up offices in Hong Kong.
Banks remain wary of crypto companies.
At a meeting last month, the HKMA polled HSBC, Standard Chartered and the Bank of China about their reluctance to take on crypto companies as clients; three secret sources told FT.
An unnamed source familiar with the discussion told FT that HKMA “encouraged the banks not to be afraid”. But the source added:
“There is resistance from a conventional banking mentality. . . we see some resistance from senior executives at traditional banks.”
According to the report, banks are trying to be open to regulator encouragement to support crypto exchanges. At the same time, however, they keep an eye on the development of regulatory procedures in the US
The banks want to support the development of the crypto industry in line with Hong Kong government policies. But they worry about getting in trouble with the regulators in case of anti-money laundering or know-your-customer issues with the crypto exchanges.