Hong Kong continues to be China’s “Test Bed” for crypto regulation

Business leaders from mainland China are keeping an eye on Hong Kong’s crypto regulations as it pushes to become a regional crypto hub.

According to the report, the prospect of retail trading being allowed on the city’s two licensed exchanges, HashKey and OSL, has attracted Chinese companies and banks.

Hong Kong sees influx of Chinese business

It is reported that business owners in mainland China participated in five days of talks. It included discussions with venture capitalists, incubator program directors and representatives from the government’s foreign investment agency.

Hong Kong currently only allows professionals to trade in cryptocurrency. But proposed crypto regulations would enable retail digital assets across the city. This expectation has driven a sudden increase in inquiries from Chinese business owners.

Since the Norwegian Securities and Exchange Commission decided to relax the rules in October, there have been positive reactions. Industry sources informed the publication that they plan to expand their operations and apply for licenses in Hong Kong.

Joshua Chu, a crypto lawyer in Hong Kong, told Nikkei Asia that he believed Beijing was considering Hong Kong as a web3 test market. He said: “Hong Kong is likely to take the lead and become a test bed.”

“China is likely to build on the Hong Kong experience and roll out one with Chinese characteristics for the mainland,” Chu added.

Mainland officials part of crypto events

The paper reports that local authorities from Nanjing and Hangzhou have attended web3 events to “learn and observe”.

According to a list of attendees seen by the newspaper, senior executives from mainland banks were among the web3 guests. Officials from China Merchants Asset Management Hong Kong, China Construction Bank International, Industrial Bank and Commercial Bank of China were part of these events. According to sources, there were also representatives from unnamed Chinese institutions.

According to those familiar with the situation, China Merchants Bank’s asset management division, Shanghai Pudong Development Bank, and Fosun Wealth, the Chinese conglomerate’s investment banking and securities arm, are among the financial institutions that have shown interest in cryptocurrency projects in Hong Kong.

“They’re interested if it’s open to retail, not so much if it’s only available to professional investors,” a source told the paper.

Companies that spoke to CNBC agreed.

Justin d’Anethan, director of institutional sales at Amber Group, said:

“If anything, China may be looking at the effect on Hong Kong of these rules, the issuance of new crypto-linked products or blockchain-based solutions, and the build-up of trade and business activity that may follow.”

However, there is likely to be an identity crisis for Chinese companies.

The newspaper was informed by a senior executive at a Hong Kong-based securities firm that it would not aggressively market to customers who only have mainland IDs. However, circumstances will vary if a customer has a Hong Kong ID.

Problems grow after bank collapse

Following the closure of cryptocurrency-friendly banks Silvergate Bank and Signature Bank, cryptocurrency businesses in Hong Kong are experiencing difficulties.

According to a South China Morning Post story based on sources, local banks are hesitant to work with them. Therefore, cryptocurrency companies have a harder time opening local accounts. In the meantime, they are searching for more suitable domestic and foreign banking partners.

Therefore, opening local bank accounts remains challenging for many crypto companies.

According to Joy Lam, a partner at Baker McKenzie in Hong Kong, the region does not prohibit local banks from working with crypto businesses. But the Hong Kong Monetary Authority requires banks to carry out due diligence and continuous monitoring of these customers.

Hong Kong, meanwhile, plans to implement new crypto regulations in June. After that, all retail traders can buy, sell and trade cryptocurrencies without restrictions.

In the meantime, the region will introduce new rules in June. Then, it will officially make crypto buying, selling and trading fully legal for all citizens. It also includes mainland Chinese institutions. However, the Securities and Futures Commission must grant licenses to cryptocurrency trading websites.

In its plan to regulate trading platforms for virtual assets, the commission has already started a consultation process.