Chinese banks target crypto firms in Hong Kong after mainland ban

HONG KONG – Crypto firms rushing into Hong Kong after the city opened its doors to the violence-prone sector are finding a surprising source of potential support: China’s state-owned banks.

Chinese banks have approached crypto companies directly in recent months, adding to signs that the city’s push to become a major digital asset center has support from Beijing, even though crypto trading has been banned on the mainland for over a year.

The Hong Kong arms of Bank of Communications, Bank of China and Shanghai Pudong Development Bank have either started offering banking services to local crypto firms or have made inquiries, according to people with knowledge of the matter.

On at least one occasion, sales representatives from a Chinese bank even visited the office of a crypto company to pitch their services, one person said.

The olive branch is notable as the sector has been shunned by major banks and faced difficulties in securing normal banking services, such as opening an account to pay employees and suppliers.

It’s also an opportune time, with lenders filling a void following the failures of US tech banks Silicon Valley Bank, Silvergate Capital and Signature Bank.

The pressure from Chinese lenders “means a lot to us because it’s something you would never expect at this point, even around the world,” said Sung Min Cho, founder and CEO of beoble, a provider of a decentralized messaging system. applications.

“A cryptocurrency account in a TradFi bank is something groundbreaking.”

Not easy

Banking for crypto businesses has never been easy.

Its anonymous nature has been a major red flag for traditional banks, where know-your-client (KYC) procedures are standard for compliance.

Digital asset firms have been forced to find different solutions to meet operational banking needs, according to Hong Kong-based crypto firms who agreed to speak on condition of anonymity.

It can easily take three months for crypto-focused companies to secure a corporate bank account, compared to one month for non-crypto companies.

This means firms often try out more than a dozen lenders, including niche choices like Indian or Japanese banks, or virtual banks like ZA Bank.

Even with an account, banks often flag transactions linked to digital asset firms and can suddenly suspend accounts after an initial warning.

For those who trade in crypto-tokens, it is even more difficult.

Almost no traditional banks offer help transferring tokens to fiat currencies as a regular service, so many had turned to crypto-friendly banks abroad like Signature or alternatives in Switzerland and the Middle East.

Signature’s payment network remained operational even after the lender was placed into receivership, Bloomberg News previously reported.

Those without bank accounts have to be even more creative.

That could mean setting up a separate Hong Kong company without a crypto link to apply for bank accounts for payroll purposes, or by outsourcing human resources and payroll to a third party.

To withdraw tokens, some have turned to over-the-counter crypto exchanges such as OSL and Hashkey, the only two licensed in Hong Kong, or used physical cryptocurrency exchangers in the city.

“It would be great if local banks could start a pilot program to support crypto firms and more professional service providers who understand our native environment,” said Dominic Law, head of Metaverse at Neopets Metaverse, a game backed by Chinese firm NetDragon Websoft.

“Certainly the business landscape would be more welcoming and easier to support more start-ups to develop in this field.”

Mr Jack Chou, founder of the blockchain technology company CNHC Group, is a founder seeking to set up in Hong Kong in the wake of the collapse of the crypto-friendly banks in the US.

The firm, which offers an offshore Chinese yuan-pegged stablecoin, was able to recover about $10 million ($13.3 million) of its more than $12 million in deposits with SVB, Signature Bank and First Republic Bank.

A majority of this was transferred to an offshore bank account in China’s Hainan pilot free trade zone and a small portion to DBS Bank in Singapore.

Chou and his business partner have traveled to the city five times since Hong Kong announced its new crypto push in 2022 and plan to visit again in April.

“Opening bank accounts is one of the top priorities,” Chou said.

So far, Chou has approached DBS Hong Kong, HSBC, Standard Chartered, Bank of China (Hong Kong) and Hang Seng Bank, but there was not much progress.

“Crypto is still sensitive,” Banks told him.

“That’s the conflict. On the one hand, the government is pushing the development of the industry, on the other hand, the city’s banking system does not offer us any services, said Chou.