Last November, Hong Kong kicked off a consultation pertaining to anti-money laundering (AML) and counter finance terrorist (CFT) regulation that will impact cryptocurrency exchanges or virtual asset service providers (VASPs). The deadline for comments delivered to the Hong Kong Financial Services and the Treasury Bureau (FTSB), was January 31, 2020. The expectation is new rules will be incorporated at some point later this year that will bring Hong Kong in line with previously reported Financial Action Task Force (FATF) recommendations on VASPs. Providers will be required to be licensed to offer services in Hong Kong
In the response, GDF largely concurs with many of the Hong Kong proposals. In brief, GDF believes that balanced regulation can improve industry:
“Providing a clear system for the operation and regulation of VASPs in Hong Kong ensures that the VASP industry can continue to grow and develop, while at the same time protecting the interests of investors. As always, it is important to ensure that the regulation is clear and ‘right-fit’ for the AML/CTF risks it seeks to mitigate.”
GDF questions the FTSB proposals in regards to the cost of compliance as well as seeking better clarity on a number of issues.
One of the largest concerns of GDF is the banning of retail investors from participating in the crypto markets. To quote GDF:
“However, we noted that the licensed VASPs will only be permitted to offer services to professional investors. Given the VASPs licensed under the proposed regime will not be providing a service in securities tokens, we would like to propose the FSTB to reconsider removing this condition for licensed VASPs. We believe the condition could result in an unintended consequence for the investing public in Hong Kong will have no access to a licensed VASP but to reach out to unlicensed VASPs and peer-to-peer platforms and thus be exposed to much greater risks. Referencing approaches taken by overseas regulators such as the Monetary Authority of Singapore (MAS), the Japan Financial Services Agency (JFSA) and the Financial Conduct Authority in the United Kingdom (FCA), virtual assets that are not securities are not excluded for the retail market. The limitation may inhibit innovation and hinder competitiveness of the Hong Kong financial market in the virtual assets space.”
A Hong Kong individual professional investors must have a portfolio of HKD 8 million or more. or about $1 million in US dollars.
Concern regarding AML abuses has increased lately. The new US Secretary of the Treasury Janet Yellen recently stated “… cryptocurrencies have been used to launder the profits of online drug traffickers; they’ve been a tool to finance terrorism.”
In January, Christine Lagarde, the President of the European Central Bank (ECB) commented on the need to regulate Bitcoin saying there is “funny business” affiliated with Bitcoin and its usage for illicit activities such as money laundering.