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Hong Kong: Hong Kong Monetary Authority Issues Circular on Cryptoassets

(Apr. 4, 2019) On March 18, 2019, the Hong Kong Monetary Authority (HKMA) issued a circular endorsing a statement on cryptoassets made by the Basel Committee on Banking Supervision (BCBS). In the Circular, the HKMA asks banks planning to engage in activities relating to cryptoassets to discuss them with the HKMA and demonstrate that they have put in place appropriate systems and controls to identify and manage any risks associated with such activities. (HKMA, BCBS Statement on Crypto-Assets (Mar. 18, 2019), HKMA website.)

According to the Circular, the HKMA expects banks and other authorized institutions in Hong Kong to take note of the BCBS statement issued on March 13, 2019, and its prudential expectations regarding banks’ exposures to cryptoassets and related services in jurisdictions where banks are involved in such business activities. (Id.)

The BCBS is a committee of central banks and bank supervisors from 28 jurisdictions, including China, Hong Kong SAR, Singapore, and the United States. Its purpose is to set global standards for the prudential regulation of banks and serves as a forum to promote cooperation on banking supervision. According to its charter, the BCBS’s mandate is “to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability.” (The Basel Committee – Overview, BIS (last visited Apr. 2, 2019); Basel Committee Membership, BIS (last updated Dec. 30, 2016).)

The BCBS explains in its statement that cryptoassets do not reliably provide the standard functions of money and are unsafe to rely on as a medium of exchange or store of value. According to the BCBS, “[s]uch assets are not regarded as legal tender, and are not backed by any government or public authority. The BCBS is of the view that the continued growth of crypto-asset trading platforms and new financial products related to crypto-assets has the potential to raise financial stability concerns and increase risks faced by banks.” (Id.)

Previously, in a speech delivered September 21, 2018, to the 2018 Treasury Markets Summit, the Chief Executive of the HKMA had reiterated that cryptoassets are not money or currencies, and warned that “people wishing to invest or speculate in crypto-assets should do so without harboring the unrealistic expectation that they would one day become money or currencies that can be used as a means of exchange.” (Norman T.L. Chan, Chief Executive, HKMA, Keynote Speech at Treasury Markets Summit 2018: “Crypto-assets and Money” (Sept. 21, 2018), HKMA website.)