Hong Kong Crypto Firms Garner Support from Chinese Banks

The area has proven to be an unexpected ally for Hong Kong-based cryptocurrency firms getting ready for the new licensing framework for cryptocurrency exchanges in June. According to “people with knowledge of the matter” cited in a March 27 Bloomberg report, Chinese state-owned banks, including Shanghai Pudong Development Bank, the Bank of Communications Co., and Bank of China Ltd., have reportedly started providing banking services to crypto firms in Hong Kong or have enquired with them.

With the current official restriction on cryptocurrency-related activity in China, the Chinese banks’ backing for Hong Kong’s cryptocurrency business is important. A Chinese bank sales person allegedly visited the main headquarters of a cryptocurrency company to promote banking services, according to one source.

A spokesman from a Hong Kong-based cryptocurrency firm said, “This development is good for both the industry and the larger ecosystem, as it reflects a mature understanding of the crypto sector by traditional financial institutions.”

It is unclear whose cryptocurrency companies the state-owned Chinese banks have contacted because a company representative declined to comment. Yet, this action is viewed favorably as a step toward establishing the legitimacy of crypto-related activity in Hong Kong.

The Hong Kong government recommended presenting its own bill in October 2022 to control cryptocurrency-related activity in the area. On February 20, the Securities and Futures Commission of Hong Kong published a draft of a regulatory framework for cryptocurrency exchanges that would go into effect in June.

Under the new licensing system, cryptocurrency exchanges will need to apply for licenses with the Securities and Futures Commission and adhere to rules regarding know-your-customer (KYC), AML (anti-money laundering), and other matters.

Representatives from the China Liaison Office reportedly attended crypto events in Hong Kong despite China’s prohibition on crypto-related activity. This may indicate a change in China’s attitude on cryptocurrencies as it seeks to participate in the expanding market for digital assets.

The decision by Chinese banks to provide banking services to Hong Kong-based cryptocurrency companies is also indicative of the growing tendency among conventional financial institutions to accept cryptocurrencies. Financial institutions are beginning to notice the potential of digital assets and the necessity to incorporate them into their current systems as more nations adopt legislation for crypto-related operations. This action might pave the path for a wider use of cryptocurrencies by bridging the divide between the cryptocurrency industry and conventional finance.