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How Hong Kong’s stricter crypto regulations aim to boost investor confidence

How Hong Kong’s stricter crypto regulations aim to boost investor confidence

Hong Kong has been a major financial hub for many years, and in recent years, it has shown increasing interest in blockchain and cryptocurrency technologies. The government of Hong Kong has indicated its support for the industry’s development, and many initiatives are underway to help create a favorable environment for crypto and blockchain businesses.

Hong Kong has a well-established regulatory framework for financial services, which has helped attract many crypto and blockchain companies. The Hong Kong Monetary Authority (HKMA) has launched several initiatives to support the development of blockchain and digital currencies. For example, the HKMA is working on developing a central bank digital currency (CBDC), and has also launched a blockchain-based trade finance platform.

Many active blockchain and cryptocurrency communities in Hong Kong provide support and resources for businesses and developers in the industry. Many events and conferences related to blockchain and cryptocurrency in the city help create networking opportunities and promote the industry’s growth.

In December 2022, the Legislative Council of Hong Kong passed an amendment to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), introducing a licensing regime for virtual asset service providers (VASPs).

Hong Kong’s New Regulatory Framework

Hong Kong has recently implemented new regulatory frameworks for cryptocurrency trading and services. The updated Anti-Money Laundering Ordinance is in line with the Financial Action Task Force (FATF) Recommendation 15, which requires virtual asset service providers (VASPs) to adhere to anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations.

The new regulations require all VASPs operating in Hong Kong to obtain a license from the Securities and Futures Commission (SFC). Without a license, individuals and businesses cannot offer VA services or declare themselves as a provider.

The Hong Kong government closely regulates all activities related to the provision of virtual asset (VA) services. The term “VA services” encompasses a broad range of electronic services that include, but are not limited to:

  • (a) Offering virtual assets for sale or purchase regularly, resulting in a binding transaction; regularly introducing or identifying persons to other parties with the purpose of negotiating or concluding virtual asset transactions that are binding or with the reasonable expectation of doing so;
  • (b) Possessing direct or indirect control over client money or client virtual assets in the provision of such services.

It is important to note that crypto trading platforms that allow trading in financial products such as securities and futures contracts are not subject to the new licensing regime, as they are already regulated under the Securities and Futures Ordinance. Another thing to note is that the new licensing requirements extend to all crypto exchanges registered in Hong Kong under the Companies Ordinance, including those based outside of Hong Kong that actively target Hong Kong citizens in their marketing efforts.

Prohibition on Unlicensed VA Service Providers

The amended Ordinance also prohibits unlicensed persons from performing regulated functions related to the business of providing VA services. Such functions may include the buying or selling of virtual assets, managing virtual asset portfolios, and providing virtual asset custodian services.

Unlicensed individuals or businesses cannot advertise VA services in Hong Kong. The SFC can take enforcement actions against unlicensed entities, including issuing fines and revoking licenses.

Impact on VASPs

The new regulations have significant implications for VASPs operating in Hong Kong. The licensing process is rigorous and requires VASPs to demonstrate compliance with AML/CFT requirements. Licensed VASPs are subject to ongoing supervision and monitoring by the SFC.

The licensing process requires VASPs to provide detailed business information, including ownership structure, management team, and risk management systems. VASPs must also conduct customer due diligence and transaction monitoring to detect and report suspicious activities.

VASPs that fail to comply with the regulatory requirements may face severe consequences, including fines, license revocation, and reputational damage. The regulations aim to promote a safe and stable virtual asset market in Hong Kong and protect the interests of investors and consumers.

Benefits of the New Regulatory Framework

The new regulatory framework for virtual asset services in Hong Kong has several benefits for VASPs and investors. Firstly, the regulations provide clarity and certainty about the legal and regulatory environment for virtual asset services in Hong Kong. This clarity can help attract more investors and businesses to the market.

Secondly, the regulations promote transparency and accountability in the virtual asset market. Licensed VASPs must maintain proper records, conduct regular audits, and report suspicious activities to the relevant authorities. These requirements can help deter fraud and other illicit activities in the market.

Thirdly, the regulations help promote a level playing field for all VASPs operating in Hong Kong. The licensing process ensures that all VASPs meet the same high standards and are subject to the same regulatory requirements. This can help create a more competitive and fair market for virtual asset services in Hong Kong.

How to get the license?

Crypto businesses must obtain a license from the Securities and Futures Commission, the regulatory body for securities and futures markets. To get a license, the business must pass a ‘fit and proper’ test that involves criminal background checks, AML/CFT performance history, financial standing, educational or other qualifications, reputation, experience, character, reliability and financial integrity of the person. The business must also apply for approval of the premises to keep records or documents required under the Ordinance. Additionally, each director of the applicant and the ultimate owner must be determined as ‘fit and proper’ to be associated with providing the VA service.

To meet the regulatory requirements of the new Ordinance, licensed crypto businesses must introduce AML/CTF measures, including customer due diligence, transaction monitoring and record-keeping, screening clients against international sanctions and watchlists for PEP status, and screening clients in adverse media. They must also comply with Travel Rule requirements and appoint an eligible auditor within one month after becoming a licensed provider. Furthermore, they must prepare financial statements and other documents for prescribed periods and submit them with the auditor’s report to the Commission within four months after the end of the financial year to which they relate.

The licensed provider must also submit an annual return to the Commission and pay a prescribed fee within one month after each anniversary of the license’s grant date. Finally, the licensed person must notify the Commission in writing of any change in information that the licensed person or ultimate owner has provided under the requirements of the Ordinance, including intended cessation of business or intention to change the address at which it proposes to provide any VA service.

Final words

The SFC will have broad powers to supervise AML/CTF and regulatory compliance by licensed VASPs, including imposing sanctions. Businesses that operate without a license or violate AML rules can face significant fines and imprisonment for senior management. In the case of fraudulent activities or deception involving virtual assets, fines can reach up to 10,000,000 HKD (1,277,000 USD) and imprisonment for up to 10 years.

The new regulations will come into effect on April 1, 2023. Some provisions, including licensing requirements, will go into effect on June 1, 2023. Businesses are advised to start preparing for the new regulations as soon as possible and reviewing their AML/CTF policies and controls to identify potential gaps in the requirements.

Overall, implementing these new regulations is expected to attract more institutional investors to the Hong Kong cryptocurrency market, as they will have greater confidence in the safety and legitimacy of the industry. The move also brings Hong Kong’s cryptocurrency regulations in line with global standards and best practices.

Hong Kong has experienced significant events since 2019 that have had a major impact on the city and its people. Hong Kong has faced many challenges, from protests and political unrest to the COVID-19 pandemic to the introduction of national security law and political changes. I hope the city’s new crypto agenda pushes a critical step forward. By embracing the opportunities of new technologies, protecting investors, and promoting transparency, Hong Kong can continue to be a leader in the global financial industry.

Some “#AnndyLian Food for Thought” before I end this article:

The Japanese government recognized early on that allowing retail investors to participate in the cryptocurrency market could help drive adoption and promote innovation. My question is: “Will Hong Kong follow Japan’s approach to allowing retail investors to trade cryptocurrencies in a regulated environment?”

This could be one of their selling points. I am eager to find out.

 

Source: https://cryptoslate.com/op-ed-how-hong-kongs-stricter-crypto-regulations-aim-to-boost-investor-confidence/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

Hong Kong’s New Crypto Regulations – Opportunities, Risks, and China’s Backing

Hong Kong’s New Crypto Regulations – Opportunities, Risks, and China’s Backing

The recent launch of Hong Kong’s new crypto regulation has sparked interest among the crypto community. The city-state is looking to fully open its doors to crypto asset trading and investment, with a focus on establishing a licensing regime for crypto service providers. The move is expected to attract capital and talent to Asia, making it a hub for the crypto industry.

Opportunities

One of the significant opportunities presented by Hong Kong’s new crypto regulation is the potential for retail investors to participate in the crypto market. Previously, only institutional investors and high-net-worth individuals had access to this market. The new licensing regime is expected to provide a more level playing field for all investors, increasing market liquidity and improving price discovery.

Hong Kong’s reputation as a financial hub could make it an attractive destination for global crypto companies seeking to expand their presence in Asia. The city-state’s strong legal framework and supportive regulatory environment could encourage crypto companies to set up shop in Hong Kong, bringing job opportunities and economic growth to the region. Another potential opportunity presented by the new crypto regulation is the potential for Hong Kong to become a leader in green finance. The Hong Kong government has expressed interest in launching tokenized green bonds for institutional investors. This could attract investors interested in investing in environmentally sustainable projects, promoting responsible investing and reducing the carbon footprint.

Risks

While the new crypto regulation presents several opportunities, it also comes with its fair share of risks. The most significant risk is the potential for increased market volatility. The crypto market is notoriously volatile, and retail investors who lack experience and knowledge of the market may be at risk of significant losses.

There is the risk of crypto scams and fraudulent activities. The unregulated nature of the crypto market has made it a hotbed for scams and fraudulent activities. The new licensing regime is expected to address this issue, but it remains to be seen how effective it will be. Another significant risk is the potential for regulatory arbitrage. As Hong Kong establishes its licensing regime, crypto companies may look to set up shop in the city-state to avoid regulation in other jurisdictions. This could result in a race to the bottom, where jurisdictions offer increasingly lax regulations to attract crypto companies.

I must highlight this. On the surface, the new regulations appear to be a positive development for Hong Kong’s crypto industry, but are there any risks involved? One of the potential concerns is that the new regulations could stifle innovation by imposing too many restrictions on the industry . For example, the proposed regulations require all crypto exchanges to have a minimum capital of HK$5 million (US$644,000), and exchanges must maintain a 1:1 reserve ratio of fiat currency to digital assets. Such requirements could be difficult for some smaller players to meet, which could hurt the competitiveness of the industry.

China’s Backing

One question on the minds of many is whether China will back out of its support for Hong Kong’s crypto ambitions. China has historically been hostile to crypto, with a ban on cryptocurrency transactions in 2021. However, recent developments suggest that China may be softening its stance on crypto

Justin Sun’s crypto exchange, Huobi Global, has announced that it is applying for a crypto trading license in Hong Kong and launching a new trading venue there. This move suggests that China may be willing to support Hong Kong’s crypto ambitions, providing a boost to the city-state’s efforts to establish itself as a hub for the crypto industry.

On the flip side, many do see potential uncertainty surrounding China’s stance on cryptocurrencies too. If you remembered in 2021, China banned cryptocurrency transactions, which sent shockwaves throughout the global crypto industry. Although Hong Kong is technically part of China, it operates under a separate legal system and enjoys a high degree of autonomy. However, there are concerns that China could still exert its influence and try to clamp down on Hong Kong’s crypto industry if it sees it as a threat to its own regulatory goals

Conclusion

Hong Kong’s new crypto regulation, which is set to establish a licensing regime for crypto service providers, presents an opportunity for the city-state to become a hub for the crypto industry in Asia. This move is expected to attract capital and talent to the region, leading to improved market liquidity and increased price discovery.

However, the new regulation also poses some risks that need to be taken into consideration. One of the risks is the potential for increased market volatility as more players enter the market. Another risk is the possibility of scams and fraudulent activities as the industry expands and attracts more investors. To mitigate these risks, the Securities and Futures Commission is adopting a “regulate to protect” approach to digital assets.

As mentioned above, there is the risk of regulatory arbitrage, which could arise if other countries in the region adopt different regulatory frameworks for crypto service providers. To address this risk, the Hong Kong Monetary Authority (HKMA) has issued its conclusions on cryptoassets and stablecoins regulation, aiming to provide clarity and consistency across the industry.

My view is Hong Kong’s new crypto regulation presents both opportunities and risks for the city-state to establish itself as a hub for the crypto industry in Asia. While attracting capital and talent, improving market liquidity and increasing price discovery are some of the opportunities, market volatility, fraudulent activities, and regulatory arbitrage are some of the risks that need to be addressed to ensure the effectiveness of the new regulatory framework.

 

Source: https://www.securities.io/hong-kongs-new-crypto-regulations-opportunities-risks-and-chinas-backing/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

Lunar New Year Chinese visitors to Singapore, Hong Kong help revive gold post-Covid

Lunar New Year Chinese visitors to Singapore, Hong Kong help revive gold post-Covid
  • ‘We have seen an increase in visitors … certain Chinese customers, who have not been buying from us for a long time, have resumed’, one trader said
  • Gifts of gold at Lunar New Year are thought to bring luck to both giver and receiver. China is the biggest consumer and producer of the precious metal

 

 

China’s reopening ahead of the Lunar New Year holiday has brought back the lustre of gold in two of Asia’s most important financial hubs – Hong Kong and Singapore.

A steady stream of Chinese visitors since borders reopened on January 8 has stoked up premiums on gold – a mark-up paid to secure speedy deliveries and cover overhead costs – by around 300 per cent to US$3 an ounce from a year ago, dealers say.

Spot gold prices – what the customer on the street actually pays – are hovering around an eight-month peak of US$1,900 an ounce in global markets.

“It’s early days yet, but we have definitely seen an increase in visitors over the past week. Certain Chinese customers, who have not been buying from us for a long time, have resumed,” said Padraig J Seif, Founding Partner of the Hong Kong based-Precious Metals Asia.

Traditionally, gold buying peaks in the run up to Lunar New Year, which this year falls on January 22. Visitors from the mainland like to shop in Hong Kong and Singapore because of the high quality of precious metal products such as jewellery and coins.

“Gold holds a special place for Chinese people, it symbolises wealth and prosperity, making it a popular choice for Lunar New Year gifting,” said Hong Kong-based Chow Tai Fook Jewellery Group in a statement, adding that it had seen an increase in gold purchases recently and was expecting a “surge in demand for bridal jewellery as 2023 is considered to be an auspicious year for couples looking at tying the knot”.

Buying momentum likely to increase

Around 64,000 mainland Chinese visitors have streamed into Hong Kong since borders reopened. That flow is expected to increase as a quota of 50,000 travellers per day across four land border checkpoints will be raised to 65,000 a day for four days from Wednesday.

City authorities have also announced that they would increase the number of daily rail tickets from Wednesday.

The momentum in gold sales is expected to last even after the holiday season because of around two years of pent up demand, as many Chinese people are still reluctant to travel because of Covid-19 but are expected to gradually start taking trips.

The holiday season also arrived earlier this year, as it often falls in February. Beijing’s abrupt U-turn on zero-Covid in late December surprised many people and did not give them enough time to firm up travel plans before Lunar New Year.

Gold has long been considered a way to store and lock in value, and demand for it spiked in Asian markets in the initial months of the pandemic in 2020 because of a climate of uncertainty. But the bullion trade in Asian hubs crashed soon after China imposed travel restrictions.

“Lot of people stopped buying because they were experiencing financial difficulties,” said Seif, whose sales revenue in the first two weeks of January has already surpassed that of the entire month a year ago.

It’s not just retail buyers of jewellery, either – long term investors are also turning back to gold. The US Federal Reserve is expected to this year soften its aggressive rate increases, which could make returns on the precious metal higher than on interest-bearing bonds.

Investors have also gravitated towards the precious metal because of its safe haven appeal due to geopolitical tensions such as the Russia-Ukraine war and the looming prospect of a global recession.

Investment bank Goldman Sachs expects gold to trend even higher than it is now later this year, at around US$1,950 an ounce.

Demand in China, the world’s largest gold consumer and also the biggest producer of the precious metal, is expected to have an important bearing on prices.

Like Hong Kong, Singapore’s gold trade is also benefiting from China scrapping travel restrictions with the city state bracing for overall visitor arrivals to rise to 12-14 million, around double the year before.

“Chinese gold demand is expected to drive the global market this year,” said Spencer Campbell, the Singapore-based director of SE Asia Consulting Pte Ltd.

“With the easing of restrictions in China, retail demand for gold is expected to increase in Singapore and Hong Kong as more people shop for gifts and jewellery to celebrate the Lunar New Year.”

Demand has picked up across Asia since late last year, he added.

Indian consumers – in second place after their Chinese counterparts – bought a record amount of the metal in the fourth quarter of last year.

Some Asian investors have switched to precious metals from cryptocurrencies after one of the largest global exchanges, FTX, went bankrupt in November following a surge in customer withdrawals.

Bitcoin, one of the most actively-traded currencies that soared to an all-time high of US$69,000 in November 2021, is now trading at around US$21,000.

However, one Singapore-based fund manager appeared unimpressed by gold’s charms and said savvy investors can take advantage of cryptocurrency volatility, with traders buying at low prices and selling when they rise.

“Gold may be a safe haven” but there were many other opportunities elsewhere for investors “to profit from price fluctuations”, said Anndy Lian, a partner at the Singapore-based Passion Venture Capital and author of the book NFT: From Zero to Hero.

Bullion dealers have said the increased purchasing of gold following China’s reopening is likely to last until the end of the first quarter. Chinese appetite for gold could well continue at the same brisk pace throughout the year if the economy revives and incomes bounce back, they noted.

 

Source: https://www.scmp.com/week-asia/article/3207411/lunar-new-year-chinese-visitors-singapore-hong-kong-help-revive-gold-post-covid

 

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j