Global Digital Finance Warns Hong Kong’s Proposed Rule Will Send Crypto Investors to Unregulated Exchanges

Global Digital Finance Warns Hong Kong’s Proposed Rule Will Send Crypto Investors to Unregulated Exchanges

Recently, the crypto industry players in Hong Kong have focused on fighting a proposed law that limits crypto trading only to professional investors, which will practically see about 93% of the populace locked out of the crypto market.

A key cryptocurrency advocacy group, Global Digital Finance (GDF), is warning that if the proposed law goes through, most retail investors and traders will move to unregulated and unlicensed platforms.

Global Digital Finance is made up of leading crypto exchanges such as Coinbase, BitMex, OKCoin, and Huobi, steering the efforts against the proposed new legislation.

Their caution comes after the independent Financial Services. The Treasury Bureau (FSTB) came up with a crypto regulation framework late last year that seeks to ban all retail traders from participating in the crypto market. At the time, the regulator stated that the proposal was in line with the Financial Action Task Force (FATF) recommendations. At the time, the regulator explained that the new law was also meant to tighten Anti-Money Laundering (AML) as well as counter-terrorism financing measures.

However, the proposed law exceeds FATF’s recommendations and is in tandem with the stringent stance against crypto trading in mainland China.

The new law is under the public participation phase and is set to end soon before the legislation becomes law.

“Restricting cryptocurrency trading to professional investors only is different to what we have seen in other jurisdictions, such as Singapore, the UK, and the US, where retail investors can buy and sell virtual assets,” Said GDF’s chair, Malcolm Wright.

Wright explained that Hong Kong risks joining other crypto-hostile destinations stating that other FATF members such as the United States, United Kingdom, and Singapore all permit retail investors to participate in the crypto market.

A recent survey conducted by CitiBank found that only 504,000 people (7%) owned enough assets that meet a professional investor’s requirements.

The group also explained that the restrictions would also curtail innovation and even financial inclusion.

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Author: Joseph Kibe

PBOC Planning Technical Pilot Testing of Digital Renminbi (e-CNY) for Cross-Border Payments

The central bank of China and Hong Kong Monetary Authority is now discussing the technical pilot testing of digital renminbi for cross-border payments, said HKMA on Friday. The launch date for e-CNY hasn’t been set yet.

Sharing the recent development in the cross-border payment area, Eddie Yue, the chief executive of Hong Kong’s central banking institution wrote,

“The HKMA and the Digital Currency Institute of People’s Bank of China are discussing the technical pilot testing of using e-CNY, the digital renminbi issued by the PBOC, for making cross-border payments, and are making the corresponding technical preparations.”

He further notes that with renminbi already in use in Hong Kong and e-CNY being the same as cash in circulation, “it will bring even greater convenience to Hong Kong and Mainland tourists.”

This development was shared in HKMA’s article on “A New Trend for Fintech – Cross-border Payment,” where it talks about the share of e-payment in Hong Kong being one of the highest among the world’s developed economies.

While the domestic payment service has become highly digitized, development in cross-border payments is lagging behind globally.

For this, HKMA launched a joint research project with the Bank of Thailand last year to address the various cross-border payment issues by using central bank digital currencies (CBDC) and a blockchain platform. Yue noted,

“The research project has entered its second stage, including exploring specific business applications as well as the operability and scalability of the platform to allow the participation of three or more CBDCs.”

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Author: AnTy

Ant Group’s Record-Setting IPO Suspended in Hong Kong and Shanghai Over Regulatory Concern

The stock exchanges of Hong Kong and Shanghai announced on Tuesday that Ant Group’s much anticipated initial public offering (IPO), which would have been the largest stock sale at US$39.67 billion, was suspended less than 48 hours before the start of trading over regulatory concerns.

Just last month, co-founder Jack Ma talked about digital currencies being the future as he said the current system needs to be reformed, “one for the next generation and young people.”

Ma also criticized China’s financial regulator, saying the current regulatory system stifles innovation as he called for a revamp, which may have played a role in this suspension.

Earlier this week, Ant Group’s senior executives, including Ma, had a meeting with China’s top financial regulators and central bank officials that led to a “significant change” to Ant’s business environment.

According to Ant Group’s statement to the two stocks exchanges, the fintech company did not fulfill the listing requirement or disclosure rules. As such, the trading debut was postponed.

Retail investors who applied for the IPO, which was oversubscribed 389 times, will get a refund in two batches, reported South China Morning Post.

About 1.55 million small investors in Hong Kong contributed HK$1.3 trillion ($167.7 billion) into the highly awaited IPO offering, making it the highest amount to be refunded in history.

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Author: AnTy

Crypto.com Forks Uniswap & Launches DeFi Swap on Ethereum

Hong Kong-headquartered Crypto.com has launched a DeFi Swap service, which allows users to swap and farm DeFi tokens.

A fork of Uniswap V2, the platform is powered by its native token CRO, the 10th largest cryptocurrency by market cap, which is trading at $0.160, up nearly 6%.

Other coins supported are Wrapped ETH (WETH), Tether (USDT), USDC, DAI, Chainlink (LINK), and Compound (COMP), with more to be introduced in the future.

One can start farming by using any WalletConnect enabled mobile wallet, which the company says will soon be coming on its DeFi Wallet.

Gains & Losses

The liquidity providers (LPs) will be rewarded with 0.3% of the respective liquidity pools’ trading volume. For selected pools, LPs will also receive tokens that are redeemable for coins of the participating DeFi projects.

Crypto.com is guaranteeing a minimum reward pool of 14 million CRO for the first 14 days on this Ethereum-based decentralized protocol.

Meanwhile, those who stake CRO can “boost their yield by up to 20x and harvest the daily yield in as little as 30 days.”

These services, however, are restricted to the residents & citizens of over 30 countries, including the US, Mainland China, Hong Kong SAR, Iran, Iraq, and Venezuela.

Much like any DeFi project, the company clearly states using it at your own risk as it cautions of risks involved that aren’t limited to the loss of virtual assets, collapse in liquidity, changes in the smart contacts, extreme volatility, counterparty risk, attacks, hacks, defects, loss of private keys, and regulatory uncertainty.

“Not a Bubble”

The ongoing mania has resulted in the DeFi space exploding with the total value locked in it amassing nearly $10 billion, which after the recent correction, is currently under $8 billion.

However, “DeFi is not necessarily a pure bubble about to burst,” said Crypto.com in its report on decentralized finance. The report continued,

“It might deflate once the hype subsides, but as globalisation progresses and the business ecosystem further shifts towards new-generation business models built upon shared governance and decentralisation, there will be a growing demand for solutions like DeFi which will provide new ways banking, trading and investing – perhaps even setting the standard for economies to climb out of the shadows.”

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Author: AnTy

Equos Parent Company, Diginex, Raises $20M Ahead of Planned Nasdaq Listing Later This Month

Diginex, the Hong Kong-based parent company of the cryptocurrency exchange Equos has raised $20 million ahead of its panning listing on the Nasdaq stock market later this month.

The funding was raised from a group of private investors through the placement of convertible notes, including family offices in Hong Kong and London, and a hedge fund reported Bloomberg.

Diginex chief executive officer, Richard Byworth said the private placement was necessary from the standpoint of investors assessing the company’s upcoming takeover by 8i Enterprises Acquisition Corp. He said,

“This fundraise was an important initiative to ensure we are well capitalized to invest in our core businesses as we embark on our journey to become one of the world’s leading digital asset firms.”

The private fundraising announcement came before its shareholder vote on Sept. 15 on its takeover by 8i Enterprises.

The funds raised meanwhile will be used for capital expenditures. Diginex is also planning to shrink its Hong Kong office of 80 people, which is two-thirds of its global staff, and relocate them to Singapore along with its exchange business.

As for the exchange’s listing on Nasdaq, the company is seeking to get listed on Sept. 23rd if it gains approval from the Nasdaq and 8i shareholders. The US Securities and Exchange Commission (SEC) has already approved the listing.

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Author: AnTy

Hong Kong Regulator to Grant Fidelity-backed OSL Digital the First Crypto Exchange License

The Securities and Futures Commission (SFC) of Hong Kong will be issuing a license to cryptocurrency firm OSL Digital Securities, reported Reuters.

OSL, a unit of Fidelity-backed BC Group, became the first firm in November last year to apply for a digital license under the market regulator’s new rules allowing cryptocurrency exchanges to opt into regulation.

The company revealed in its exchange filing on Friday that the financial regulator has agreed in principle to grant the license.

The final approval, however, is subject to certain conditions, which “you’d expect from a conservative regulator in a financial hub,” said BC Group CEO Hugh Madden.

OSL and some of its competitors to welcome the regulation as it would enable the regulated institutions to reduce their risk by engaging with other regulated risks.

In the first half of 2020, BC Group made a net loss of 90.8 million yuan ($13.13 million). Besides its crypto business, which accounts for the company’s bulk of revenue, it also provides business parks and advertising services.

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Author: AnTy

BIS and HKMA Launch ‘TechChallenge’ Seeking Trade Finance Innovations; DLT & IoT Included

The BIS Innovation Hub (BISIH) has partnered with the Hong Kong Monetary Authority to hold a trade finance digitization competition to spur innovative solutions for the sector, especially in Asia. BIS announced on August 3 that global innovators are invited to submit their applications by the end of the month, after which successful participants will be invited to develop full prototypes in a sandbox environment throughout 2021.

Research conducted by the HKMA before embarking on the ‘Tech challenge’ revealed that over 70% of stakeholders in traditional financial institutions believe that most global trade finance needs are yet to be addressed. Notably, the Asian Development Bank (ADB) has, in the past, presented similar facts, highlighting a $1.5 trillion global trade finance gap.

With such stakes in play, the BIS and HKMA have since taken the initiative to find solutions for this potential market. Other prominent stakeholders backing this project include the People’s Bank of China (PBOC), International Institute of Finance (IIF), and International Chamber of Commerce (ICC).

Blockchain and DLT Highly Considered

Interestingly blockchain, which is among the latest emerging tech featured, has been regarded as a solution to some of the problem statements tabled by BIS and HKMA. For starters, distributed ledgers can be instrumental in connecting ‘digital islands’; this is where tech becomes akin to specific jurisdictions, or is limited such that every party runs its centralized platform.

The BIS now suggests that blockchain can be used for linking global trade finance platforms for better communication, hence connecting the digital islands from the point of trust and verifiability.

In addition, blockchain can also be considered in delivering efficient B2B or B2C ecosystems for SME’s to thrive. According to the explainer materials by the BIS, novel tech such as Artificial Intelligence (AI), Machine Learning (ML), and IoT will further complement efforts towards the SME environment.

Finally, innovative solutions in line with onboarding emerging markets were featured in the BIS and HKMA problem statement. On this one, decentralization, which most actors approach with an open infrastructure perspective, could assist in the integration of developing markets through seamless interface connections. The organizers highlighted,

“To leverage the diversity of innovation and digitization underway on this topic globally, solution providers are free to suggest any technology approaches they consider suitable to address one or more of the problem statements, including decentralized approaches based on blockchain/ Distributed Ledger Technologies (DLT).”

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Author: Edwin Munyui

International Banks Reportedly Enhance Due Diligence in Hong Kong Following New Security Law

Global banks have begun scrutinizing their Hong Kong clients to filter out pro-democracy individuals following the new national security law backed by mainland China.

A recent report by Reuters has revealed that the likes of HSBC, Credit Suisse, and Julius Baer are among the international banking giants that have since increased their diligence process, screening for government and political ties.

With the new security law in place, such a move was anticipated, given more exposure to regulatory risks. Citing anonymous sources, the report notes that banks have, in turn, introduced a new ‘sub-class’ of threat dubbed ‘politically exposed persons.’

“The designation, called politically exposed persons, can make it more difficult or altogether prevent people from accessing banking services, depending on what the bank finds about the person’s source of wealth or financial transactions.”

It goes on to detail that wealth managers are relying on social media posts by the individuals and their affiliates in the recent past. A key stakeholder in this industry revealed that his clients’ AUM, which currently totals $200 billion, could be audited as far as 2014 to determine a person’s stand in the Hong Kong pro-democracy ‘umbrella’ movement, which kicked off in the same year. Should a party be found to be a pro-democrat, they may end up being excluded from Hong Kong’s entire financial ecosystem.

Though none of the global banks has yet to comment on the matter, they appear to be towing the line as they look to maintain and probably scale business in Hong Kong.

Surprisingly, this is not the same reaction from parent governments that have since called out China for the new security law. The U.S senate, for instance, has already passed some sanctions under the ‘Hong Kong Autonomy Act,’ which could eventually affect financial service providers that link Hong Kong’s liquidity with the dominant dollar-system.

China CBDC Implementation takes on Crypto Decentralization

At the same time, China is fast-moving to play an ace card on the emerging decentralized economy whose fundamentals are pegged on crypto assets. The country banned cryptocurrencies earlier but has aggressively developed its own PBoC backed digital currency, an initiative that is now a reality in the pilot phase.

Also dubbed ‘DC/EP,’ the Chinese digital yuan will be an integral part of its financial network, given most of its population already transacts via Alipay or WeChat. Notably, the CCP will be able to exercise further its authoritarian approach in this new central bank digital currency.

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Author: Edwin Munyui

Hong Kong Passes Limited Partnership Funds (LPF) Bill Including Investment in Digital Assets

Last week, “Limited Partnership Fund Bill” was passed by the Legislative Council of the Hong Kong Special Administrative Region. The bill that aims at attracting private equity, real estate and venture capital funds to set up and operate in Hong Kong also covers investment in digital assets.

The bill will come into operation on August 31st, 2020.

With this bill, Hong Kong has established a new regime for investment funds to be registered in Hong Kong in the form of limited partnerships. It was first introduced in March to provide an alternative investment vehicle for private fund managers raising funds or investing in Asia.

Under this new regime, investment managers need to be licensed by the SFC (Securities and Futures Commission), ensure proper custody of assets, annual audits of independent funds, and be compliant with the AML/CFT.

“Major jurisdictions waking up to regulated Bitcoin products. Great progress in Hong Kong!” noted Gabor Gurbacs, digital asset strategist at VanEck.

The definition of “fund” in the Bill covers, but not limited to, Venture capital, Private equity, and M&A funds, Real Estate Fund, Infrastructure and project funds, Special circumstances fund, Mixed Fund, Non-performing asset fund, Credit Fund, and Funds invested in digital assets such as cryptocurrencies and virtual assets.

Fully Regulated Bitcoin Fund

Today, MV Index Solutions GmbH announced that in partnership with CryptoCompare, it had licensed the MVIS CryptoCompare Bitcoin Index (MVBTC) for its recently launched Bitcoin fund which is available only to institutional and professional investors.

“We are pleased that our Digital Asset Indices continue to be popular and that we are now also the underlying index or Hong Kong’s first regulated cryptocurrency fund,” said Thomas Kettner, Managing Director at MV Index Solutions.

“This will help to strengthen the status of digital assets as an asset class and fulfills the needs of institutional investors.”

The licensing is part of the broader push to bring institutional-grade fund products to investors looking to gain exposure to bitcoin and other cryptos.

“With the launch of their fully regulated Bitcoin fund, VSFG and Arrano Capital will help further the adoption of digital assets that fulfil the needs of institutional investors,” said Charles Hayter, CEO, and Co-Founder of CryptoCompare.

Hong Kong & Bitcoin

Not long back, bitcoin got really popular and increasingly in use in Hong Kong; however, lately, there hasn’t been any major capital flight out of it.

While crypto ATM Genesis Block Hong Kong seeing its volume doubling, no such spike can be seen on P2P platforms LocalBitcoins or Paxful.

While Nic Carter of Coin Metrics says, “unencumbered access to the financial system isn’t guaranteed,” Matthew Graham, CEO of Sino Global Capital, points out that “HKD is freely convertible” and as such doesn’t see it as a big use case.

They may not be using Bitcoin but seem to be using stablecoins as the trading volume between Hong Kong dollars and USD pegged USDT has been seeing a surge in June on fiat-to-crypto trading platform TideBit. This could be attributed to the national security law enacted by China on June 30.

However, much of trade happens over-the-counter (OTC) in mainland China and Hong Kong, so it’s hard to know the real trading volume and interest in stablecoins and digital assets.

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Author: AnTy

U.S Senate Sanctions Following the Hong Kong Security Law Could Affect Crypto Brokerages

The U.S Senate sanctions that were passed in response to the Hong Kong security law might affect crypto brokerage operations.

Dubbed the ‘Hong Kong Autonomy Act,’ this senate bill aims to reprimand China for eroding the city’s autonomy, which had long favored its position as a financial hub. According to the new security law, Hong Kong’s freedom of expression has been infringed to the extent of not being allowed to criticize the Chinese Communist Party (CCP).

With the U.S acting as the leader of the free world, a counter move on this infringement was to be expected. Now that the Senate has already given the green light; the U.S government can now move to limit its foreign registered subsidiaries in Hong Kong from providing access to the dollar ecosystem. These limitations will be in situations where the other party is undermining Hong Kong’s autonomy. However, the bill did not specify what criteria would be used to arrive at such decisions, leaving this to the U.S Treasury.

The Effect on Crypto Brokerages

These moves by the U.S senate and CCP could have a significant toll on crypto brokerages operating in Hong Kong. The city has long been a link between mainland China crypto businesses and international markets, given its friendly nature towards digital assets. This link has since motivated mainland China-based crypto exchanges such as Huobi and OKCoin to set up in Hong Kong.

While their operations are majorly in Asia, access to the dollar ecosystem is fundamental for liquidity and other aspects. According to the president of Hong Kong’s Bitcoin Association, Leo Weese, a move to curtail liquidity provision would be catastrophic for the Hong Kong-based exchanges:

“The most successful cryptocurrency companies here are dependent on their access to the U.S. dollar system … They move money around, they are big brokers, and if they somewhat lose that access, they are in trouble.”

Weese’s sentiments were seconded by other stakeholders in this market, including Genesis Block’s chief trader, Charles Yang, who noted that reliance on U.S banks for dollar settlements is inevitable. Consequently, the ongoing friction puts their business at more risk.

“If there is any further friction from the U.S. policy, it could be very damaging to our business.”

Hong Kong’s Financial Dominance in Limbo

While the new security law doesn’t intend to change Hong Kong’s financial status, this could quickly change, according to Weese.

“I think for now there is no intention to mess with Hong Kong’s financial system and scare companies away, but of course things could quickly change.”

As both the CCP and U.S continue to fine-tune their stance on this development, a move to Beijing as China’s financial hub will mean more scrutiny by the government. This might, in turn, make wire transfers and other financial services expensive and slower compared to the autonomy that preceded business in Hong Kong.

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Author: Edwin Munyui