Crypto AML, Crypto Compliance, Cryptoregulation, Hong Kong, Virtual asset,
Hong Kong Crypto Regulations
In a move that has captured the spotlight in the cryptocurrency landscape, Hong Kong unveiled plans in May 2023 to permit retail crypto trading. This announcement marked a significant turning point of Hong Kong crypto regulations , drawing widespread attention to the region’s evolving stance on digital assets.
Adding to the momentum, June 1, Hong Kong took a significant step by enacting new regulations specifically targeting cryptocurrencies. These regulations introduce a licensing framework for cryptocurrency exchanges, bringing them under the oversight of the Hong Kong Securities and Futures Commission (SFC). The SFC wasted no time in releasing comprehensive regulatory guidelines for operators of Virtual Asset Trading Platforms (VATP). This set of guidelines serves as a cornerstone of the new regulatory landscape, highlighting the authorities’ commitment to fostering a secure and transparent crypto trading environment.
One crucial aspect that sets Hong Kong apart is its distinct financial autonomy and regulatory infrastructure. While mainland China has upheld a ban on cryptocurrencies since 2021, Hong Kong has taken a different path. The region’s continued embrace of cryptocurrencies within the boundaries of its established financial system underscores its commitment to innovation while maintaining its unique regulatory oversight.
As Hong Kong solidifies its position as a cryptocurrency hub with these groundbreaking developments, the global crypto community watches closely to observe the impacts and implications of these new regulations on the broader market.
Amidst a backdrop of political and economic challenges, Hong Kong, once a global financial cornerstone, has set its sights on becoming a thriving crypto hub. Turbulent events such as the 2019–2020 protests, the National Security Law, and the COVID-19 pandemic-related restrictions prompted a brain drain, causing financial institutions to relocate personnel to other regions like Singapore. This shift led to a population decrease of 1.6% in mid-2022, while Singapore’s population surged by 3.4%.
Later, Hong Kong starts to make waves by embracing the Web3 and digital assets ecosystem, potentially altering its reputation. Unlike China’s cautious stance, Hong Kong has welcomed the entire crypto industry and even received implicit backing from Beijing. This newfound openness aims to attract crypto companies and traditional financial institutions to partake in the booming Web3 and digital assets sector, likely under Beijing’s watchful gaze.
Hong Kong’s proactive stance is evident in its government’s push to transform the city into a crypto hub. Initiatives like InvestHK actively court Web3 and virtual asset investors. Additionally, the government also announced the establishment of a task force on promoting Web 3 development and collaborations with international counterparts for regulating digital assets highlighting Hong Kong’s commitment.
Hong Kong Crypto Regulations and Virtual Asset Trading Platforms (VATPs)
The Securities and Futures Commission (SFC) has introduced specific licensing conditions for Virtual Asset Trading Platforms (VATPs), including extra AML/CTF guidelines. These conditions entail collecting more customer data to assess business and risk profiles, along with ongoing due diligence involving IP addresses, geo-location, device IDs, virtual asset wallet details, and transaction records. The SFC expects VATPs to use suitable technology and third-party services to spot instances requiring enhanced CDD, like transactions involving risky wallet addresses or higher anonymity assets. Licensed VASPs are also required to adhere to AML/CTF requirements overseen by the SFC, while ancillary service providers could be subject to existing CDD frameworks.
Engaging in operations without the necessary license can result in fines of up to HK$5,000,000 ($640,000), and individuals responsible for overseeing such activities within companies could potentially face imprisonment for a maximum of seven years. Furthermore, a daily fine of HK$100,000 can be imposed for ongoing violations.
Scorechain and Crypto Compliance
Scorechain’s blockchain analytics and compliance solution can help you easily implement AML/CFT requirements asked by the regulator, including, for instance:
Monitoring of crypto transactions, addresses, and wallets related to high-risk jurisdictions, suspected money laundering, to other VASPs, etc.
Record-keeping, suspicious activity reporting, and due diligence documentation.
Scorechain provides a blockchain analytics and transaction monitoring platform for crypto assets. As a leader in crypto compliance, the Luxembourgish company has helped over 200 customers in 45 countries since 2015, ranging from cryptocurrency businesses to financial institutions with crypto trading, custody branch, digital assets, customers onboarding, audit and law firms, and some LEAs.
Scorechain’s platform provides identifying data and risk assessment for 30+ blockchains. The platform connects to different sources and block lists to provide risk scoring on crypto assets, transactions, addresses, and entities. The risk assessment methodology applied by Scorechain has been verified and is fully customizable to fit all jurisdictions. Customers can monitor infinite possibilities of risk scenarios with a wide range of parameters provided so businesses under the scope of the crypto regulation can report suspicious activity to authorities with enhanced due diligence.