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Asia-Pacific, Crypto, Financial Services

Hong Kong government wants licences for all providers of virtual asset services

By Dan Byrne for AMLi

HONG KONG IS PLANNING a licence-based system for cryptocurrency exchanges in a major legal clampdown aimed at bringing the territory to FATF standards.

If they come into force, the new rules would effectively bar cryptocurrency trades among retail investors and compel any entity seeking to act as an exchange facilitator to obtain a licence.

This would move the territory further along the road towards regulated virtual asset management, bringing an end to the era of relative free reign that private bodies and investors enjoyed in trading cryptocurrencies.

In a press release published Tuesday, the government of Hong Kong announced amendments to current laws which would require all virtual asset service providers (VASPs) to obtain a licence from a government body before they can begin activity.

The proposals are largely in line with standards set by the Financial Action Task Force (FATF).

Although Hong Kong hasn’t been noted by FATF as a jurisdiction which requires immediate guided improvement (a so-called ‘grey list’ jurisdiction) the Chinese autonomous territory has nevertheless affirmed its commitment to adhere to worldwide standards.

“The proposals are pertinent to our fulfilment of the relevant FATF obligations and will uphold our credibility as a trusted and competitive place to invest and do business,” a HK government spokesperson said in a statement.

VASPs – entities specialising in the trading of cryptocurrencies like bitcoin – have received criticism for their vulnerability to facilitating financial crime.

Weak know-your-customer (KYC) policies and lax government regulations in the country of operation mean that some VASPs are liable to be used by launderers and terrorism financiers as a way to transfer vast sums with ease.

The new rules would firmly tighten government control of the industry and ensure that no providers can begin operations without public knowledge and oversight.

The announcement of new laws comes just one day after Singapore announced it planned similar clampdowns on the virtual asset services industry – in this case to expand VASP-related definitions to cover wider ranges of entities and transactions.  

Both jurisdictions are considered economic epicentres in Asia – and indeed the world – and now appear eager to refine their financial reputations, and ensure cryptocurrencies don’t remain in a grey area beyond official legislation.

The Hong Kong government has opened a public consultation period on the proposed legislation which will end at the end of January 2021.

The proposals also cover a registration regime for dealers in precious metals and stones. 

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