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A Hong Kong lawmaker has encouraged cryptocurrency exchange giant Coinbase to establish a presence there, to take advantage of its new regulatory framework for cryptocurrencies.
On June 14, Johnny Ng – Member of the Legislative Council of Hong Kong – tweeted his desire to see Coinbase and other crypto exchanges set up shop in the city. The tweet seemed to suggest that Hong Kong could offer Coinbase a friendlier home, amid perceptions that an aggressive grip on US regulation is forcing crypto firms to look for alternative hubs to grow their business.
Hong Kong’s potential to serve as a home base for crypto companies was boosted on June 1, when a new regulatory framework came into force that sets the framework for licensing virtual asset trading platforms (VATPs). The regime will allow licensed VATPs to offer retail trading services provided they meet strict regulatory requirements regarding consumer protection, market conduct, safekeeping of cryptoassets, anti-money laundering (AML) and other regulations.
Hong Kong’s Securities and Futures Commission (SFC) is likely to apply rigorous licensing standards, which could cause some frustration among VATPs seeking licenses there.
However, a clear and comprehensive regulatory framework is one that has been hailed by many cryptoasset exchanges and other service providers in the space as a potentially promising basis for business. Consequently, a growing number of VATPs in the crypto industry have come to regard Hong Kong – once written off as largely hostile to cryptoassets – as an attractive place to seek licenses.
Supporting the claim that Hong Kong could emerge as a relatively friendly home for crypto companies was a June 15 report in Financial Times. It said the Hong Kong Monetary Authority (HKMA) sent a letter in April to three banks – HSBC, Standard Chartered and Bank of China – warning them to avoid indiscriminately mocking crypto firms. Bank de-risking of crypto firms is common in many parts of the world and has made it difficult for crypto innovators to get much-needed banking services.
In a further potential boost to Hong Kong’s status as an emerging crypto hub, on June 12 the investment arm of the Bank of China announced that it had issued tokenized securities on the Ethereum blockchain in Hong Kong – the first time a Chinese financial institution has issued tokenized securities in the city.
To learn more about the rapid development of crypto regulation in Hong Kong, watch our on-demand webinar on Hong Kong’s Crypto Hub ambitions. Also, be sure to sign up for our upcoming webinar on 6 July, where we’ll be speaking with the SFC’s Director of Licensing and Head of FinTech Elizabeth Wong to hear the regulator’s first-hand perspective.
a16z opens London office as UK debates its crypto future
On June 11, one of the biggest venture capital (VC) firms in the crypto space made it clear that it sees the United Kingdom as a potential future hub for cryptocurrencies.
In a blog post, Chris Dixon, managing partner of a16z – the investment arm of prominent tech VC firm Andreessen Horowitz – said the company is expanding into the UK as it seeks to expand its investment activities beyond its current US base.
According to Dixon, a16z decided to make the United Kingdom its base because of the country’s increasingly progressive approach to crypto-asset regulation. He stated that “policymakers and regulators in the UK have an approach that is uniquely tailored to the regulation of blockchain and digital assets […]. We believe the UK is on the right track to becoming a leader in crypto regulation.”
The move to the UK by one of the crypto world’s biggest VCs is a significant boost for Prime Minister Rishi Sunak’s government, which has said it wants to make the country a global hub for crypto innovation.
In response to the a16z announcement, Sunak issued official announcement in which he said that: “As we cement the UK’s place as a science and technology superpower, we must embrace new innovations such as Web3, powered by blockchain technology […]. That is why I am delighted that the world’s leading investor, Andreessen-Horowitz, has decided to open its first international office in the UK.”
The news also came in the same week that the British Parliament debated how to make the country a crypto hub. Economy Secretary Andrew Griffiths used the debate to reiterate the government’s commitment to making the UK a hub for cryptocurrencies, although he rejected a proposal by a public-private sector group to appoint a “crypto czar” who could lead a co-ordinated approach to crypto policy. across government.
That proposal was put forward on June 5 by the All Party Parliamentary Group (APPG) on Digital Assets, which, as we noted last week, argued that the UK can achieve its goal of becoming a hub for crypto innovation with a clear and comprehensive regulatory framework in place.
Combined, this activity shows that a growing number of UK policymakers want to see crypto play an integral role in the country’s evolution as a leader in financial services.
The US Treasury Department is considering the privacy and illicit finance implications of the digital dollar
A senior US Treasury official has detailed how policymakers are weighing privacy considerations around a possible US central bank digital currency (CBDC).
In remarks delivered June 13 at the Transform Payments USA 2023 conference, Assistant Treasury Secretary Graham Steele described the work Treasury is currently doing as part of a CBDC task force along with other US financial policy bodies such as the Federal Reserve. While Steele was careful to note that the US government has not yet decided whether to move forward with a CBDC, his remarks made it clear that US policymakers are thinking carefully about the implications of issuing one.
Steele noted that in considering whether to proceed with a CBDC, the US is thinking carefully about how to balance the competing priorities of protecting privacy with fighting illicit finance.
He noted that: “Meeting both of these important goals requires a careful balance in the design of any potential retail CBDC […]it is important that we consider the extent to which privacy and anonymity could be preserved and explore available technologies and methods, including privacy enhancing technologies (PETs), to enable such protections in the design of any potential retail CBDC. Such technologies could play a key role in maintaining transactional privacy while ensuring transparency and traceability, thereby strengthening user confidence in digital financial transactions.”
The remarks about US research into a potential CBDC come just two weeks after the European Central Bank signaled progress in its own research into a potential digital euro.
New York AG settles with CoinEx
On June 15, New York Attorney General Letitia James announced that the Hong Kong-based crypto exchange agreed to cease operations in New York and pay $1.7 million to settle charges of illegal business in the state.
James’ office previously filed charges against CoinEx in February of this year. The charges allege that CoinEx allowed New York state residents to access its platform even though they never received approval from the New York Department of Financial Services to offer crypto-asset trading services in the state. Moreover, the charges allege that CoinEX failed to register with the US Securities and Exchange Commission or the Commodity Futures Trading Commission (CFTC), despite allowing trading on its platform of crypto-assets that are securities and commodities.
Of the $1.7 million paid by CoinEx to settle the charges, $600,000 is in fines paid to the state, while another $1.1 million is restitution to investors in New York State.
Australia sets strategic vision for payments
The Australian Government is consulting on a plan to improve Australia’s payments system for the future. On June 7, the Australian Treasury published a consultation on the “Strategic Plan for Australian Payments Systems”, which aims to “provide businesses with certainty and clarity about the government’s approach to important issues in the payments system, enabling businesses to invest and innovate with confidence.”
The plan indicates that the Australian government sees crypto and related developments like CBDCs potentially playing a significant role in Australia’s future payments environment. It states that: “New developments such as crypto-assets, CBDC and digital ID will impact the payments system for years to come,” and indicates that as part of its ongoing work to improve Australia’s payments system, the Treasury will continue to study potential implications of cryptocurrencies and stablecoins in the field of payments.
Compliance with Financial Services Regulations
