China Bans Crypto For the 100th Time; Hong Kong to Restrict Retail Traders From Exchanges

Breaking: China Bans Crypto For the 100th Time; Hong Kong Proposal Seeks to Restrict Retail Traders From Exchanges

Cryptocurrency exchanges in Hong Kong are set to be prohibited from offering services to retail crypto traders following a new government proposal.

Hong Kong Floats New Proposal On Licensing Crypto Firms

The legislative proposal, which Hong Kong’s Financial Services and Treasury Bureau (FSTB) floated, has now moved past its consultation period, Reuters report.

During its consultation conclusions, the FTSB disclosed that all virtual asset service providers (VASPs) or cryptocurrency exchanges operating in Hong Kong would need a license to do so once the law is passed.

The regulator also said the services of cryptocurrency exchanges would now be restricted to only professional investors. The exchanges would be prohibited from offering services to retail traders until the initial stage of the licensing regime is over.

According to Hong Kong law, an individual must have a portfolio of HK$8 million ($1.03 million).

Hong Kong has one of the largest cryptocurrency exchanges in operation. Its opt-in approach under which exchanges can either choose to apply to be licensed by the regulator or not has provided a flexible environment for exchanges to operate in.

This new rule could drive exchanges out of Hong Kong and push investors onto unregulated venues.

Hong Kong Tightening The Noose On Anti-Money Laundering Regulations

Like many other countries, the Hong Kong Government has been assessing how they can regulate the cryptocurrency industry. Lack of investor protection and money laundering are particular concerns of the country.

Today’s announcement forms the conclusion of a consultation process that ran from November 2020 to the end of January 2021.

The Hong Kong government is also reportedly planning to empower the city’s Securities and Futures Commission (SFC) to withdraw the licenses of already authorized crypto exchanges.

When signed into law, the proposal would see the SFC provided with necessary intervention powers to impose restrictions or prohibit companies from providing crypto services.

Away from the companies, the proposal would also bring the SFC more powers to protect clients against potential misconduct from VASPs.

Other Asian countries like Singapore and China also have their regulations regarding cryptocurrency. Singapore requires all crypto exchanges to be licensed before they can operate, however unlike Hong Kong, retail traders can invest.

China recently reiterated its tough stance on cryptocurrencies. On Tuesday, the country announced a ban on banks and payment companies offering crypto-related services.

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Author: Jimmy Aki

Hong Kong Restaurant Starts Accepting Bitcoin, Ether & other Cryptos as Payment

Hong Kong Restaurant Starts Accepting Bitcoin, Ether & other Cryptos as Payment

The growing crypto adoption has been following China calling BTC and stablecoins “investment alternatives” and the local publication talking about the warnings of a dangerous bitcoin bubble being misleading.

A restaurant in Hong Kong is now accepting cryptocurrencies as a form of payment.

This move has been made by Max Levy’s Japanese fusion restaurant Okra Hong Kong because of poor business during the coronavirus pandemic and exorbitant bank fees in the city.

On Wednesday, the restaurant started accepting payments in Bitcoin (BTC), Ether (ETH), Ripple (XRP), BNB, and BUSD stablecoin, reported South China Morning Post, an English-language newspaper owned by Alibaba Group. The move away from cash is expected to improve the balance sheet. He said,

“If we were keeping just a small amount of our revenue, even if it’s just 1% of our monthly revenue, in some form of crypto, then yes, it’s a risk that the cryptocurrency could go down, but it’s also a possible high reward even if those currencies go up just 3 or 4%.”

It was on losing the electronic access to the restaurant’s bank account for 10 days because the security token device the bank had issued him ran out, and the bank did not rectify the problem that Levy decided to accept crypto.

Making the transactions over the counter, which the bank suggested, incurs a fee of HK$50 (US$6) each time, and the restaurant does over 60 transactions on the account every month. He said,

“Here in Hong Kong, I think anyone that’s lived here and has owned and operated a business has definitely had to deal with more than one currency on a regular basis, whether it’s just Hong Kong dollars to US dollars or whether it’s Hong Kong dollars to yuan. So, I mean, there’s always a risk involved.”

Levy expects at least 25% of his customers, up to 1,000 people every month, to pay with cryptos by the end of the year.

This crypto-forwardness came right on the heels of SCMP reporting on the warnings of a dangerous bitcoin bubble being misleading. The opinion piece says not only the unique sector bounced back from a series of crashes and continues to set new highs, but there is also increasing institutional interest in bitcoin despite the intense volatility.

Interestingly, last week in a rare and progressive move, the deputy governor of the PBOC called bitcoin and stablecoins “investment alternatives.”

“They are not currency per se. And so the main role we see for crypto assets going forward, the main role is investment alternative,” said Li Bo, a first from the Chinese government recognizing the asset value of cryptocurrencies.

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Author: AnTy

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

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

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

Hong Kong Residents Rushing to US Dollars as the US-China Cold War Intensifies

China is moving closer to impose a new national security law in Hong Kong following months of violent pro-democracy protests last year.

This has expats and anyone who can afford to flee Hong Kong and move to other countries. Amidst this, the residents of Hong Kong have been exchanging more and more of their HKD holdings into US Dollars at banks and money exchange counters.

This rush for USD is forcing many exchangers in Hong Kong to turn away hundreds of customers after they ran out of currency amidst the fears that the US could end the preferential status of the city.

Last week, President Donald Trump said the US will end its preferential treatment of Hong Kong as a customs and travel territory from the rest of China. This announcement came just days after the Secretary of State Mike Pompeo said Hong Kong was no longer autonomous from China to warrant special treatment.

China said on Monday that any attempt by the US to harm China will be met with countermeasures.

“Any words or actions by the U.S. that harm China’s interests will meet with China’s firm counterattack,” said Chinese foreign ministry spokesman Zhao Lijian.

HKD’s 36-year-old peg to the US dollar

There are also fears that the Trump administration might break the 36-year-old peg system that fixes the exchange rate of currency at 7.8 Hong Kong dollars per US dollar. HKD was first pegged to USD in 1983.

City’s finance secretary Paul Chan said on Monday that they have no plans to change its currency peg to US dollar and the Asian financial hub hasn’t seen any “obvious” capital outflows yet.

The Hong Kong Monetary Authority (HKMA) along with local banks and investors, all can buy and sell US dollars in the open market.

Moreover, a temporary repurchase agreement was introduced by the US Federal Reserve in March that made it easier for central banks to get USD. This arrangement which is to last six months is part of the efforts to combat the economic effects triggered by COVID-19.

In April, the HKMA introduced a $10 billion liquidity facility to provide all 162 banks in the city with access to USD made available by the Fed.

US dollar is out of stock

Last week, the demand for US currency surged after Chain’s new legislation endorsed to craft a law for Hong Kong that would criminalize acts and activities of secession, subversion of state power, terrorism, and foreign interference.

In response, HK residents rushed to convert their local currency into US dollars, which they view as more stable.

Demand for currency actually increased 10 times last week. More and more customers are looking to switch large sums, “hundreds of thousands or even millions of Hong Kong dollars – at a time.”

“The US dollar is out of stock everywhere. We’ve offered every last bit of our supplies to our customers,” said Eric Wong Wai-lam, who runs Rich Bird Currency Exchange in Sham Shui Po and was forced to turn away 600 customers.

Residents are also looking for alternatives like the pound, Euro, and Australian dollar. “People will take anything you have,” he said.

City’s largest banks, HSBC also had some of the automated teller machines run out of US dollars.

Increased adoption for Bitcoin and Stablecoins

Last year, when protests surged in Hong Kong, the city turned to bitcoin, which traded at a premium. On Paxful, the demand for BTC in the city has been growing throughout 2020 which like last time could see another spike.

Now that there are uncertainties over the city’s economic future, Hong Kong residents may flock to the decentralized, censorship-resistant cryptocurrency and even to USD pegged stablecoins which have been seeing immense adoption during the recent market sell-off.

During the first quarter of 2020, as the USD became a hot commodity so did the stablecoin in the crypto market. One of the reasons for the increased adoption of USD-pegged digital currencies was the global shortage of US dollars.

Moreover, the stock and crypto market could see the effect of the US-China jitters, although for now, both are stable.

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Author: AnTy

Hong Kong Financial Authorities To Apply FATF Regulations To Crypto Exchanges, Brokers

  • Hong Kong proposes new regulations to target Virtual Asset Service Providers (VASP) in accordance with FATF recommendations.
  • This is despite Hong Kong being miles ahead of its Asia-Pacific peers and receiving high ratings from the financial agency.

Reports have emerged that the Hong Kong government is looking to increase its efforts in the regulation of the crypto space. This is in a bid to increase adherence to the global Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) guidelines.

In a speech by Paul Chan, Hong Kong’s Financial Secretary the government is going to use the recommendations by Financial Action Task Force (FATF) assessment to better their AML/CTF agenda. Notably, they plan to include Virtual Asset Service Providers (VASP) and precious metal merchants into their AML/CTF framework with plans to include the public’s input on the same.

The new regulations are to unsettle crypto exchanges and Over the Counter Brokers (OTC) in Hong Kong which has so far been crypto-friendly. In a memo from Hong Kong Money Authority (HKMA) official Carmen Chu to heads of all Authorized Institutions (AI) where she indicated that AI should treat the VASP’s different depending on the risk assessment for individual VASPs.

“Assessing the AML/CFT controls of the VASP as appropriate The extent of customer due diligence measures should be commensurate with the assessed ML/TF risks of the VASP”

In June last year, the FATF updated its guidelines in regards to the AML/CTF standards. The proposal stipulated that countries would now hold virtual assets to the same regard as property or funds.

The FATF would also obligate VASP’s to share detailed transactional information such as the sender and destination of funds for transactions above USD/EUR 1000. This information should be readily available for the next five years in case the regulators come calling.

Hong Kong rated highly compliant by FATF

This is despite Hong Kong ranking highly in the global watchdog’s FATF assessment. They rank as the first jurisdiction in Asia-Pacific to have aced the FATF assessment. Countries are now racing towards achieving FATF compliance standards with reports of private partnerships among countries to collaborate efforts to monitor cryptocurrency transactions.

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Author: Lujan Odera