HSBC and Standard Chartered pressed by Hong Kong to take on crypto clients

Hong Kong’s banking regulator is pressuring lenders including HSBC and Standard Chartered to take on crypto exchanges as clients, even as US regulators crack down on the industry.

At a meeting last month, the Hong Kong Monetary Authority questioned the UK-based lenders and Bank of China on why they were not accepting crypto exchanges as clients, three people with knowledge of the matter said.

Due diligence on potential customers should not “create undue burden”, particularly “for those setting up an office in Hong Kong to look for the opportunities here”, the HKMA said to the banks in an April 27 letter seen by the Financial Times.

Banks do not have a ban on crypto clients, but they are reluctant to take on exchanges over fears they could be prosecuted if the platforms are used for money laundering or other illegal activity.

The pressure underscores the difficulties being created by Hong Kong’s push to establish itself as a global centre for the crypto industry despite a series of high-profile and damaging collapses including the implosion of FTX.

“HKMA encouraged the banks to not be afraid,” a person with knowledge of the discussion said. “There is resistance from a conventional banking mindset . . . we are seeing some resistance from senior executives at traditional banks.”

This month, the US Securities and Exchange Commission sued Binance and Coinbase, two of the world’s largest crypto exchanges, accusing them of violating US securities laws.

Yet in a sign of Hong Kong’s enthusiasm for the sector, pro-Beijing lawmaker Johnny Ng, who is also a member of China’s top political advisory body, invited Coinbase and other crypto exchanges to set up in the city following the SEC lawsuit.

Banks “are having to tread a fine line between on the one hand getting encouragement to support crypto and exchanges, but on the other hand being aware of the US situation”, said a senior executive briefed on the meeting with the banks.

An executive at one of the lenders said they were torn between wanting “to ensure the development of that industry if it’s a policy of the Hong Kong government” and worrying that they might be “taken to task on anti-money laundering or know-your-customer” issues.

Jonathan Crompton, Hong Kong-based partner at the law firm RPC, said “the HKMA and the SFC [Securities and Futures Commission] are being quite vocal about their expectations”. Crompton added the HKMA’s position was “unusual” compared with regulators elsewhere in the world that were “more crypto-sceptical”.

Hong Kong has a history as a crypto centre. It was home to Sam Bankman-Fried’s FTX exchange before the now-collapsed company moved to the Bahamas, and the stablecoin Tether and digital assets exchange Crypto.com were launched in the territory.

Its position diminished in the wake of Beijing’s crypto crackdown, which began in 2017, but it has signalled it wants to re-establish itself as a hub for the industry. The government said in October it wanted to provide a “facilitating environment” for digital assets groups.

HSBC, Standard Chartered and Bank of China have a special role in Hong Kong as issuers of the city’s currency and hold the chair and two vice-chair posts at the Hong Kong Association of Banks lobby group.

Standard Chartered said it had “regular dialogue with our regulators on different subjects”, while HSBC said it was “very engaged on policies and developments of this nascent industry in Hong Kong”. Bank of China declined to comment.

Hong Kong introduced a new licensing regime for crypto platforms this month to draw more crypto groups to the city.

“Everything has been done on the government’s side to encourage these banks to facilitate the opening of banking services to the sector,” said Neil Tan, chair of the FinTech Association of Hong Kong.

Additional reporting by Cheng Leng