The Hong Kong Monetary Authority (HKMA) has recently issued a warning to cryptocurrency businesses that presenting themselves as banks and using banking terminology could potentially violate the region’s banking laws. The central bank highlighted that, under Hong Kong’s banking laws, only licensed institutions are allowed to carry out banking or deposit-taking businesses in the region.
Banking laws in Hong Kong
In Hong Kong, specific banking laws are in place to regulate the financial sector. These laws state that only licensed institutions are authorized to engage in banking or deposit-taking activities. This means that any company claiming to be a bank or offering banking services without the required license may be breaching the law. The objective of these regulations is to ensure proper oversight and protection of customers’ funds within the banking system.
Warning against misleading terminology
To prevent potential violations of banking laws, the HKMA has cautioned the public against crypto businesses using misleading terminology. Companies describing themselves as “crypto bank,” “digital asset bank,” or “crypto asset bank” may mislead customers into believing they are operating as licensed banks. Additionally, claiming to offer banking services or banking accounts without the necessary authorization may also be a breach of the law.
Prohibition of “Bank” Usage
The HKMA has clearly stated that, other than authorized institutions, it is unlawful for individuals or businesses to use the word “bank” in the name or descriptions of their companies. This measure aims to prevent entities from falsely representing themselves as banks and offering banking services without the appropriate licensing. The prohibition of misleading terminology helps protect consumers from potential fraudulent activities in the financial sector.
Violation of deposit facilitation
In addition to misleading terminology, facilitating the taking of deposits without the proper license is also considered a violation of the law. The HKMA emphasizes that any entity engaged in deposit-taking activities must possess the necessary authorization to ensure the safety and security of depositors’ funds. Unauthorized crypto firms that accept deposits without the required license put customers’ funds at risk and may face legal consequences.
Lack of central bank oversight
It is important to note that crypto firms, which are not banks, are not directly supervised by the central bank, the HKMA. This means that customers who place their funds within so-called “crypto banks” are not protected by the region’s deposit protection scheme. Unlike licensed banks, these crypto businesses may not adhere to stringent regulatory requirements and may lack the necessary safeguards for customers’ funds.
Hong Kong’s crackdown on licensing violations
Hong Kong has been increasingly cracking down on violations of licensing laws within the cryptocurrency sector. A recent case involved the Securities and Futures Commission (SFC) issuing a warning to crypto exchange JPEX for allegedly promoting its products and services in Hong Kong without securing a license. The exchange’s staff disappeared from its Token 2049 booth in Singapore, raising concerns about its operations. Furthermore, JPEX implemented higher withdrawal fees to discourage users from retrieving their funds.
The HKMA’s warning serves as a reminder to cryptocurrency businesses operating in Hong Kong to comply with the region’s banking laws. The use of misleading terminology and offering banking services without the necessary authorization can lead to severe legal consequences. Customers should exercise caution when dealing with entities that portray themselves as banks but lack proper licensing. Protecting customers’ funds and maintaining the integrity of the financial system are key priorities for the HKMA, and they will continue to enforce regulations to ensure a safe and transparent financial environment in Hong Kong.