The Hong Kong Monetary Authority (HKMA), the region’s central bank, recently issued a strong warning to users about cryptocurrency businesses that could be breaking Hong Kong’s banking rules by acting like banks and using deceptive banking language.
HKMA’s Warning
Cryptocurrency has spawned a new lexicon, and with it, a plethora of crypto businesses that describe themselves with phrases such as “crypto bank,” “digital asset bank,” and “crypto asset bank.” While these monikers may sound appealing, the HKMA is raising a red flag.
The central bank contends that the use of these terms could mislead the public into believing that these crypto entities are legitimate banks authorized to conduct banking activities in Hong Kong. However, this is not the case, as the HKMA emphasizes that only licensed institutions are permitted to engage in banking or deposit-taking activities in the region under existing banking laws.
To understand the gravity of the situation, it’s important to grasp Hong Kong’s regulatory landscape. In the realm of banking and financial services, the region takes its laws seriously. It allows only authorized institutions to engage in financial activities under strict supervision.
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As such, individuals or businesses without the proper licenses are prohibited from using the term “bank” in their names or descriptions, let alone conducting banking activities. Facilitating deposits without the requisite authorization is also considered a serious violation of the law.
Unlicensed Crypto Firms and Deposit Protection
The HKMA’s cautionary message extends beyond language semantics. The central bank is keen to remind the public that crypto companies that do not hold banking licenses are not subject to its regulatory oversight. This means that any funds entrusted to these so-called “crypto banks” do not benefit from the region’s deposit protection scheme.
The Hong Kong authorities have recently adopted a no-nonsense approach to enforcement. On September 15, the Securities and Futures Commission (SFC) of Hong Kong issued a stern warning against crypto exchange JPEX for allegedly promoting its products and services in the region without obtaining the necessary licenses.
In the aftermath of the SFC’s warning, the exchange’s staff mysteriously vanished from its Token 2049 booth in Singapore. Additionally, JPEX raised its withdrawal fees significantly, seemingly in an attempt to discourage users from retrieving their funds from the exchange.
This proactive stance by Hong Kong’s regulatory bodies underscores the importance of adhering to the region’s stringent licensing requirements and serves as a stark reminder to crypto businesses: the line between lawful operation and violation of banking laws is razor-thin.
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