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Digital currencies
BusinessBanking & Finance

Hong Kong bans retail trading of digital currencies, requires crypto exchanges to be licensed in crackdown on fraud, money-laundering

  • The new regulations, if they get the green light, promise to bring the curtain down on an era of largely unregulated cryptocurrency trading in the city
  • Industry players expect the stricter licensing regime will lead to consolidation as some exchange platform providers exit the local market

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Hong Kong’s government aims to tighten regulation of virtual assets trading, such as bitcoin. Photo: Shutterstock
Enoch YiuandGeorgina Lee
The Hong Kong government is aiming to ban retail investors from trading in cryptocurrencies and force exchange operators to obtain licences, in a move that promises to end an era of largely unregulated trading of digital assets, according to officials.
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The government planned to release a consultation paper on Tuesday afternoon to collect views on the proposed new rules, which aim to offer investors better protection by combating fraud and money laundering, said Christopher Hui Ching-yu, the Secretary for Financial Services and the Treasury.

The new regulations will cover all types of virtual assets’ trading platforms operating in Hong Kong, as well as overseas platforms targeting local investors.

“Simply speaking, we will require all virtual-asset trading platforms to be operating transparently, like working under the sunlight. Under the proposed new regulatory regime, they must fit in with the licensing requirements of the SFC and must follow all the investor-protection and anti money-laundering regulation,” Hui said on Tuesday in a statement disclosing the plans on the website of his bureau.

The move to tighten regulation follows several scandals, including the indictment of senior executives at BitMEX, which at one time during the bull market of 2017 and 2018 used to run the world’s biggest crypto-exchange at the Cheung Kong Center, one of the most expensive office towers in the city.
Its founder and former CEO, Arthur Hayes, was among the executives indicted in October by US courts for failing to comply with US anti money-laundering requirements and thereby violating the Bank Secrecy Act. Hayes, who according to public records has a residential address in Hong Kong, has been named as a defendant in other ongoing lawsuits in the US alleging his involvement in market manipulation and money laundering.
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Arthur Hayes, chief executive officer of BitMEX, who is among the executives indicted in October by US courts for failing to comply with the country’s anti-money-laundering requirements. Photo: Bloomberg
Arthur Hayes, chief executive officer of BitMEX, who is among the executives indicted in October by US courts for failing to comply with the country’s anti-money-laundering requirements. Photo: Bloomberg

Also in October, OKEx, a Malta-based crypto-exchange with operations in Hong Kong, disclosed that it had to suspend all its customers’ cryptocurrency withdrawals. The suspension came after the exchange’s founder, Xu Mingxing – also known as Star – who reportedly holds the private key to clients’ crypto assets, had been absent from work and was reportedly under investigation by mainland Chinese police.

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