Cryptocurrency firms in Hong Kong have a headache: after the closure of the world’s two biggest crypto-friendly banks, Silvergate Bank and Signature Bank, they are finding it even harder to open local accounts given that banks in the city are not keen to serve them, industry insiders said. Opening local bank accounts still remains a daunting task for many crypto firms in Hong Kong despite the government’s push to make the city a virtual asset hub. The US Federal Deposit Insurance Corporation (FDIC) last week took control of New York’s Signature Bank, following the rapid collapse of Silvergate and Silicon Valley Bank (SVB). All three banks were, at least at one point, counted among the US’s most crypto-friendly financial institutions. Hong Kong’s cryptocurrency-related companies, many of which had been banking with Signature or Silvergate, are now scrambling to find ideal banking partners around the world and in their home city. “Quite a few crypto funds and firms we know are seeking to find local Hong Kong banking partners to do business with and [to] prevent the SVB-style crisis from happening to them again,” said Adrian Wang, founder and CEO of digital asset management firm Metalpha. Why crypto market’s future remains bright despite FTX’s collapse But while digital asset regulations in the city have become friendly overall, Hong Kong banks still have stringent requirements when dealing with crypto businesses, Wang said. Current regulations for virtual assets in Hong Kong do not restrict local banks and financial institutions from working with businesses engaged in crypto related activities, but the Hong Kong Monetary Authority requires banks to perform due diligence and ongoing monitoring of these clients, according to Joy Lam, a partner at Baker McKenzie in Hong Kong whose focus includes virtual assets. For instance, if the customer is a virtual asset service provider (VASP), the bank will need to see if the VASP is licensed, and assess its Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) controls, according to Baker MacKenzie Hong Kong partner Karen Man. As many VASPs are not currently licensed in Hong Kong nor registered for AML/CTF requirements, this “poses a significant hurdle for many VASPs to open a bank account in Hong Kong”, Man said. Ether is a security, says New York attorney general in KuCoin suit But even licensed virtual asset firms in Hong Kong face challenges, as they can also find it difficult to open bank accounts and often have very limited options, Lam said. “The abrupt shuttering in the last week of the perceived ‘crypto friendly’ banks in the US has affected a wide swathe of our clients who are engaged in virtual asset related activities, both SFC licensed and unlicensed,” said Lam. “Many clients have been scrambling this week to try to find alternative banking options, which is key to the continuity of operations and the protection of investor interests,” she said. Firms are also looking elsewhere for solutions, including Switzerland, the UK and the United Arab Emirates, where some remaining crypto-friendly banks are based. Hong Kong blockchain-focused hedge fund MaiCapital, for example, is working on opening an account at Switzerland’s SEBA Bank, the firm’s managing partner Marco Lim said. But many still have concerns for these banks around the world as they are all “relatively small”, said Alan Li, director of Hong Kong-based Da Wan Asset Management. Hong Kong firms are now hoping that local banks could expand their services and develop solutions fit for crypto companies, now that the government has set its mind to attract such businesses back to the city after a previous exodus . In October last year, Hong Kong unveiled a range of policies aimed at boosting its virtual asset sector and becoming a hub, and proposed rules on legalising retail crypto trading. But some industry players think such measures are not enough. There are already multiple ways for retail customers to buy crypto, according to Cyrus Ip, partner at Hong Kong venture capital firm Newman Capital, who argues that the “real question” is that “there’s no proper, regulated, and convenient fiat on-ramp and off-ramp infrastructure in Hong Kong”. Crypto on-ramps refer to services that offer fiat money in return for cryptocurrencies, while off-ramp means converting cryptocurrencies into fiat money. “For Hong Kong to become a true Web3 hub, it’s more than government efforts. Private sectors, including the banking sector, must share the same vision and move in the same direction,” Ip said.