Cryptocurrency advocacy groups are calling for a review of the retail investor ban proposal in Hong Kong, warning that the new rule could trigger demand for unregulated providers.
Following consultation with industry bodies on plans to limit cryptocurrency trading to professional investors – individuals with investable assets of HK$8 million ($1 million) – crypto backers are warning that such a move could result in more unforeseeable risks.
Hong Kong’s Financial Services and the Treasury Bureau (FSTB) published the proposals in November 2020 and conducted industry consultation in January with plans for introduction to local lawmakers later this year.
Unregulated Providers
According to Global Digital Finance (GDF), an industry body that represents major crypto exchanges like BitMEX, Huobi, OKCoin and Coinbase, the FSTB’s proposal to limit trading to professional investors «go beyond the Financial Action Task Force (FATF) Recommendations», suggesting instead a more agile regime with lower thresholds to start.
«Given the [virtual asset service providers] (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,» said a consultation response from the GDF board, citing a recent case of physical theft in Hong Kong as a potential consequence of restricted access.
«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.»
Regime Competitiveness
GDF also highlighted that any decision by Hong Kong to issue a retail ban on cryptocurrencies could affect the financial hub’s competitiveness.
«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,» GDF added.
«The limitation may inhibit innovation and hinder competitiveness of the Hong Kong financial market in the virtual assets space.»
Same as Blanket Ban
Even without the additional risks, limited access only to professional investors is no different from a blanket ban, according to the Bitcoin Association of Hong Kong, citing a recent Citibank study that said only 106,000 individuals in the city qualify for the definition – or 1.4 percent of the total population.
«We fear that restricting non-institutional investors from converting their Bitcoin into Hong Kong dollars constitutes capital controls,» the association said, adding that the proposed ban is «without precedent among FATF members».
«At a time where ordinary residents and government officials are denied access to basic banking services, we must not further restrict access to tools that reduce dependency on foreign institutions.»
Institutional Momentum
Meanwhile, institutional momentum for crypto adoption continues to accelerate.
The latest financial sector giants to make waves in the space include BNY Mellon which announced the introduction of its crypto custodial services and Morgan Stanley which is reportedly mulling exposure in Bitcoin through its investment arm, Counterpoint Global.
