Title: Hong Kong Authorities to Review Cryptocurrency Regulations: Exploring the Reasons
Jimmy Aki
Published:
July 3, 2024, 14:30 EDT
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2 min read
Christopher Hui, serving as the Secretary for Financial Services and the Treasury of Hong Kong, announced on July 3 that the regulatory bodies of Hong Kong plan to scrutinize market developments following the withdrawal of licensing applications from various global cryptocurrency exchanges.
Review of Licensing Policies Triggered by Withdrawals
Hui provided an overview of the regulatory position on cryptocurrencies amidst recent occurrences by revealing that the regulatory entities of Hong Kong, including the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC), would be observing market trends related to virtual assets (VAs) closely.
This statement was issued in response to queries from lawmakers regarding potential revisions in cryptocurrency licensing prerequisites subsequent to the withdrawal of licensing applications by significant global exchanges.
Hui explained that licensed firms and registered institutions can distribute cryptocurrency-related products without altering their licensing terms as long as they notify the Hong Kong regulators.
Contextualizing Hui’s statements is the implementation of the New Capital Investment Entrant Scheme (New CIES), initiated on March 1 to attract foreign investments and skilled professionals to Hong Kong.
Since its inception, the New CIES has received over 300 applications, with approvals granted based on net asset assessments and investment criteria. To qualify for the New CIES, applicants are mandated to possess at least HK$30 million in net assets or equity for the two years preceding the application.
This criterion might have influenced the decisions of multiple global exchanges to withdraw their applications in recent times.
For instance, HTX withdrew its application for a crypto trading license in Hong Kong for the second time. Similarly, Gate.io abandoned its trading license application on May 23, with intentions to delist tokens by August 28. Although the precise reasons behind these maneuvers remain ambiguous, this requirement likely played a role.
In a similar context, OKX withdrew its Virtual Asset Service Provider (VASP) license application on May 31 and halted trading services for local residents.
These withdrawals triggered backlash and inspection from members of Hong Kong’s Legislative Council, including Wu Shuo. He expressed apprehensions regarding the cryptocurrency licensing framework while addressing its implications on market confidence and the trajectory of Hong Kong’s virtual asset market evolution.
Regulators Alarmed by Rise in Cryptocurrency Scams
One of the primary objectives of the NEW CIES regulations is to shield local investors from fraudulent activities. Companies are obligated to conduct tests to evaluate customers’ cryptocurrency knowledge and enlighten them about the risks associated with crypto trading to achieve this aim. This becomes critical as the instances of cryptocurrency scams escalate in Hong Kong.
In March, a 46-year-old housewife in Hong Kong reported a loss of 7.1 million Hong Kong dollars ($908,000) after investing in a deceitful cryptocurrency platform.
The fraudulent scheme commenced in July 2022 when one of the scammers reached out to her via Instagram, persuading her to invest in cryptocurrencies through a fake trading platform. Another cyber criminal, masquerading as a customer service representative, duped her into transferring over $900,000 to 15 bank accounts between August 19, 2022, and March 4, 2023.
Moreover, the Hong Kong police highlighted a surge in cryptocurrency investment scams as digital assets continue to gain popularity in the region. Financial losses resulting from these scams surged by 42.6% to HK$3.26 billion last year from HK$926 million in 2022. The number of reported incidents also saw a considerable increase, rising from 1,884 in 2022 to 5,105 in 2023.
