Caixin
May 22, 2021 09:56 PM

Hong Kong Mulls Allowing Non-Local Companies to Apply for Crypto Exchange License

A collection of digital currency.
A collection of digital currency.

The Hong Kong government said it is considering allowing companies incorporated elsewhere to apply for a cryptocurrency exchange license, but insists on banning retail investors from trading cryptocurrencies due to risk concerns.

The government has proposed to set up a licensing regime for virtual-asset service providers, which means that unlicensed cryptocurrency exchanges would be banned in the city in the future, according to legislative proposals released in late 2020 for public comments.

The proposals, aimed at enhancing anti-money laundering and counter-terrorist financing regulations, said that only locally incorporated companies would be allowed access to the program.

However, the government will refine the proposal as some respondents suggested that non-locally incorporated companies should also be allowed to participate in the regime, a consultation conclusion report released Friday by Hong Kong’s Financial Services and the Treasury Bureau read.

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Most respondents supported the introduction of a statutory licensing regime for virtual-asset service providers in Hong Kong as they recognized that the virtual-asset industry is an emerging sector posing significant money laundering and terrorist financing risks to the financial system, the report said.

The bureau insisted that retail investors should not be allowed to trade virtual assets “at least for the initial stage of the licensing regime,” although it noted that many respondents held the opposite view.

“The requirement of confining the services of a VA (virtual assets) exchange to professional investors only is necessary to ensure a proper degree of protection for the investing public,” it said.

The bureau said that the Hong Kong Securities and Futures Commission will be the regulatory authority of the licensing regime.

The bureau will file the proposals to lawmakers for review in the 2021-to-2022 legislative session, according to the report.

Those who are found guilty of running cryptocurrency exchanges without a license could be penalized with a fine as much as HK$5 million ($644,000) and a maximum imprisonment of seven years, according to the proposals.

The Chinese mainland is also tightening the grips on cryptocurrencies. The top financial regulator on Friday urged cracking down on Bitcoin mining and trading as part of efforts to control financial risks. On Tuesday, three financial industry groups issued a joint notice banning financial institutions and payment companies from directly or indirectly providing cryptocurrency services to customers, including accepting the currency as payment.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com)

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