HKMA’s Recent Circular on Banking Services for Cryptocurrencies
On April 27, the Hong Kong Monetary Authority (HKMA) made headlines by issuing a circular aimed at encouraging banks in the region to provide essential banking services to cryptocurrency firms. This move signals a significant shift as the regulator outlined its expectations for authorized institutions, also known as AIs, to adopt a risk-based approach, especially in the realm of Anti-Money Laundering (AML) efforts.
Supporting Virtual Asset Service Providers (VASPs)
In this circular, the HKMA urged banks to pay close attention to the evolving market landscape, particularly as it relates to the cryptocurrency sector. Its directive indicated that banks should actively support licensed Virtual Asset Service Providers (VASPs) in establishing banking accounts within Hong Kong. The authority emphasized, “AIs should endeavor to support VASPs licensed and regulated by the Securities and Futures Commission on their legitimate need for bank accounts in Hong Kong.”
Proportionality in Customer Due Diligence
One interesting stipulation from the HKMA is the requirement for customer due diligence (CDD) measures to align with the risk levels associated with specific customers. This is an effort to prevent burdening firms unnecessarily. For instance, should a VASP apply for a license under Hong Kong’s new crypto regulatory framework, the HKMA insists that banks should not delay services until official approval is granted. Instead, the authority advises, “Authorized institutions should give due regard to the ‘approval-in-principle’ issued by the relevant authority.”
Training and Dedicated Support Teams
The regulator didn’t just stop at policy guidelines. It also encouraged banks to proactively train their staff and establish dedicated teams to better serve the crypto industry. This means steering clear of a “wholesale de-risking approach” that might incorrectly ostracize promising new sectors or specific nationalities.
The Bigger Picture: Regulatory Changes Ahead
This proactive stance by HKMA comes as Hong Kong gears up to implement new crypto regulations, slated to take effect on June 1, 2023. These regulations will permit retail investors to engage in trading cryptocurrencies such as Bitcoin and Ether. As Hong Kong positions itself as a crypto-friendly environment, it contrasts sharply with countries like the United States, where regulatory uncertainty has led some exchanges, including Coinbase, to contemplate relocation. A recent study revealed that the percentage of global crypto developers based in the U.S. has seen a staggering decline of 26% from 2018 to 2022.
