Tag Archives: scrutiny

Hong Kong Emerges As An Attractive Hub For The Virtual Asset Industry Amidst Regulatory Scrutiny

Hong Kong Emerges As An Attractive Hub For The Virtual Asset Industry Amidst Regulatory Scrutiny

The virtual asset industry is facing increasing scrutiny and regulatory clampdowns worldwide, leading to the emergence of new hubs for the industry. Hong Kong is one such hub that has proposed rules allowing retail investors to trade certain “large-cap tokens” on licensed exchanges, contrasting with mainland China’s ban on crypto-related transactions. Although the Securities and Futures Commission of Hong Kong has not specified which tokens would be allowed, industry insiders believe Bitcoin and Ether are likely to be among them.

China’s crackdown on crypto trading aimed to protect individual investors from speculative activity. However, the crypto industry’s increasing bankruptcies and layoffs may justify their actions. Despite this, the industry continues to attract investment and talent, making it hard to imagine Beijing sitting idly by while the rest of the world develops new building blocks that could potentially spark a new wave of innovation as big as the current internet itself.

As a result, many of China’s web3 startups have set up new bases in more crypto-friendly locations such as Singapore and Dubai. However, with Hong Kong’s more relaxed regulatory environment for cryptocurrencies, some Chinese-founded web3 companies in exile may consider returning home. Hong Kong’s proposal stipulates that all centralized virtual currency exchanges operating in the city or marketing services to the territory’s investors must obtain licenses from the securities and futures authority.

The proposed requirements cover key areas such as safe custody of assets, know-your-client, conflicts of interest, cybersecurity, accounting and auditing, risk management, anti-money laundering/counter-financing of terrorism, and prevention of market misconduct. Centralized crypto exchanges must ban Hong Kong IP addresses until they obtain the relevant permits to operate in the city. The regulatory requirements are open for consultation until March 31, and the new licensing regime will take effect on June 1. This move by Hong Kong is strategic, as it can attract crypto companies and investments to the city. Implementing clear regulatory frameworks would help the industry gain mainstream adoption and bring in more institutional investors.

AML Crypto Regulations In Hong Kong

The Legislative Council passed the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 (AML/CTF Amendment Bill 2022) on December 7, 2022. This bill introduced a licensing regime for virtual asset service providers (VASPs) and imposed anti-money laundering (AML), counter-terrorism financing (CTF), and investor protection obligations upon these actors.

VASPs that are licensed in Hong Kong are subject to a number of AML, CTF, and investor protection obligations. These include:

  • Customer Due Diligence (CDD): VASPs must conduct CDD on their customers, which includes identifying and verifying the identity of the customer, the beneficial owner, and any other person who exercises control over the customer. VASPs must also assess and understand the nature and purpose of the business relationship with the customer.
  • Ongoing Monitoring: VASPs must monitor their customers’ transactions on an ongoing basis to ensure that they are consistent with their knowledge of the customer, the customer’s business, and the risks associated with the customer.
  • Record-Keeping: VASPs must maintain adequate records of their customers, their transactions, and their risk assessments. These records must be kept for a period of at least five years.
  • Reporting: VASPs are required to report suspicious transactions to the Joint Financial Intelligence Unit (JFIU) of Hong Kong. Suspicious transactions include those that are inconsistent with the customer’s profile, those that have no apparent economic or lawful purpose, or those that involve the proceeds of crime.
  • Investor Protection: VASPs must also put in place measures to protect their customers’ assets. This includes measures such as segregation of customer assets from the VASP’s own assets and insurance against losses.
  • Penalties for Non-Compliance: VASPs that fail to comply with the new regulations are subject to a range of penalties, including fines, suspension or revocation of their license, and criminal liability. Individuals who are found guilty of money laundering or terrorist financing may face imprisonment of up to 14 years and fines of up to HKD 5 million.

The new regulations also provide for the imposition of sanctions by the United Nations Security Council or by Hong Kong in respect of breaches of international sanctions.

Licensing And Registration Requirements For VASPs In Hong Kong

Anyone who engages in a virtual asset exchange business in Hong Kong must apply for a license with the SFC. The AML/CTF Amendment Bill 2022 also introduced regulations for VASPs to comply with the Crypto Travel Rule.

The HKMA will only grant licenses to VASPs that meet certain criteria, including:

  • The company must be incorporated in Hong Kong.
  • The company must have a permanent place of business in Hong Kong.
  • The company must have adequate financial resources.
  • The company must have appropriate AML/CTF systems and controls in place.
  • The company must have a compliance officer responsible for ensuring the company’s compliance with the new regulations.

VASPs that fail to obtain a license will be prohibited from providing virtual asset services in Hong Kong.

Complying With The Crypto Travel Rule In Hong Kong

The Crypto Travel Rule will be effective in Hong Kong as of June 1, 2023. The new regulatory regime will provide industries with a grace period to prepare for compliance until that date. In Hong Kong, Travel Rule requirements apply regardless of the transaction amount.

The scope of data to be exchanged varies depending on the threshold of the transaction. For virtual assets that amount to HKD 8,000 or more, the following information needs to be shared: name, account number, and address of the originator, as well as the beneficiary’s name and account number. For virtual assets that amount to less than HKD 8,000, only the name and account number of the originator and beneficiary are required.

There are no differences in customer personally identifiable information (PII) requirements for cross-border transfers and transfers within Hong Kong. However, for wire transfers, the information recorded must include the number of the originator’s account or a unique reference number assigned to the wire transfer by the financial institution.

Non-custodial or self-hosted wallet transactions do not have any specific requirements in Hong Kong. The AML/CTF Amendment Bill 2022 defines virtual asset transfers subject to Crypto Travel Rule requirements as transactions for transferring virtual assets carried out by an institution on behalf of an originator, with a view to making the virtual assets available to the originator or another person at an institution, which may be the ordering institution or another institution.

To sum up, Hong Kong’s plan to permit retail investors to trade large-cap tokens on licensed exchanges is a significant advancement for the worldwide crypto industry. While China’s crackdown on crypto trading was meant to safeguard individual investors from speculative behavior, Hong Kong’s proposed regulatory framework is more lenient and has the potential to lure more crypto companies and investments to the city. The establishment of clear regulatory frameworks would aid in the industry’s adoption by the general public and attract more institutional investors. I hope to witness a harmonious balance between the two approaches.

 

Source: https://www.benzinga.com/23/03/31340390/hong-kong-emerges-as-an-attractive-hub-for-the-virtual-asset-industry-amidst-regulatory-scrutiny

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 “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

Singapore’s crypto players face added scrutiny under new law

Singapore’s crypto players face added scrutiny under new law

SINGAPORE — Singapore on Tuesday passed a law that extends its cryptocurrency regulations to companies with a local presence that provide digital token services outside the city-state, as authorities further tighten rules around the emerging industry.

Lawmakers approved the Financial Services and Markets Bill 2022, which was brought up in parliament for debate on Monday. The law brings digital token service providers created in Singapore but who provide their services elsewhere under the purview of domestic regulators.

The legislation covers industry players who deal in Bitcoin, Ethereum and other digital currencies, facilitate their exchange or offer financial advice on the sale of these tokens, among other activities.

Crypto players operating in Singapore and serving the local market are already regulated by the city-state’s central bank. They are required by law to adhere to licensing requirements as well as be able to guard against money laundering and terrorist financing.

But those who do not provide digital token services in the city-state were not under the same oversight. The new law changes this, requiring all crypto players, whether they serve the local or foreign markets, to come under the same licensing requirements.

“Sad, disappointed — we went 10 steps backwards,” said a member of a crypto lobby group in Singapore who spoke on condition of anonymity. The source questioned the necessity of digital asset players with a base in the city-state being licensed if they do not target domestic consumers, which was a worry for the central bank. “So MAS [the Monetary Authority of Singapore, the city-state’s financial regulator and central bank] is making the assumption that the license is like gold — that everyone will want to get it?”

Alvin Tan, a board member of the MAS, explained the state’s reasoning to parliament on Monday.

“We could be exposed to reputational risks brought by digital token service providers created in Singapore, and which provide services relating to virtual assets such as Bitcoin outside Singapore,” he said. “The FSM Bill seeks to mitigate such risks by licensing these players and imposing AML/CFT requirements on them.”

Singapore is not alone in tightening its scrutiny of the booming crypto sector.

Last month, Thailand issued a ban against payments using cryptocurrencies and other digital assets in a bid to maintain stability in financial markets.

China has banned all cryptocurrency payments and services for disrupting the “economic and financial order.”

In 2019, Japan’s Financial Services Agency imposed stricter information technology requirements on licensed exchanges, following security breaches and hacking incidents that marred the industry.

In January, Singapore published a set of guidelines instructing crypto players to stop marketing or advertising their offerings to retail investors in public spaces, both physical and virtual, calling the trading of such assets “highly risky and not suitable for the general public.”

The law approved on Tuesday has also garnered some positive reactions.

Singapore-based Anndy Lian, chairman of Netherlands-registered crypto trading platform BigONE Exchange, told Nikkei Asia that the city-state’s enhanced regulations are “reasonable.”

“If you walk the ground hard enough, you will see many bad actors and dubious crypto companies using Singapore as a base of their operations,” he said. “We need to properly regulate things so that the bad actors won’t affect this industry’s image.”

Even before the new law hit the books, the MAS had been busy processing license requests. In January it said there were about 180 applications for permits, more than 60 of which were withdrawn or rejected. Only a handful of applicants were successful, though others were awaiting the central bank’s decision.

With the tightened regulations, the central bank is poised to sift through a batch of additional license requests as Singapore-based crypto players that mainly deal overseas are now required to meet the state’s standards if they want to use the city for their operations.

In March, Singapore-based payments company Digital Treasures Center, which provides a platform to facilitate cryptocurrency transactions, said it received in-principle approval from MAS to provide digital payment token services.

Desmond Yong, its chief strategy officer, told Nikkei that crypto players will need to devote additional resources to monitor foreign transactions so as not to run afoul of the new law.

“For companies that are unable to fulfill the AML/CFT requirement, they will need to move out to other countries,” he said. “But with more governments regulating cryptocurrency in different jurisdictions, these companies will soon find it hard to operate.”

 

Original Source: https://asia.nikkei.com/Spotlight/Cryptocurrencies/Singapore-s-crypto-players-face-added-scrutiny-under-new-law

 

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 “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