Exchanges warn that Hong Kong’s crypto retail trader ban could backfire

Actors in the Hong Kong crypto industry have sought to crack down on an upcoming law that will restrict legal trading in cryptocurrencies to professional investors and ban 93% of the local population from the market.

In comments on the South China Morning Post published on Feb.15, industry association Global Digital Finance warned that the proposed law would likely encourage retailers to use unregulated platforms. Global Digital Finance represents cryptocurrency exchanges such as BitMEX, Huobi, Coinbase, and OKCoin, and has led the industry in efforts to crack down on upcoming legislation.

Hong Kong’s Financial Services and Treasury Bureau first published the proposal in November 2020 to tighten anti-money laundering and counter-terrorism measures. The move is in line with efforts to align national regulations with the recommendations of the Financial Action Task Force (FATF).

However, the Bureau’s proposal surpasses the requirements of the FATF framework and instead reflects the tough stance on cryptocurrency trading in mainland China. Global Digital Finance Advisory Board Chairman Malcolm Wright has indicated that FATF members Singapore, the UK and the United States continue to allow retailers to participate in the cryptocurrency market.

In January, the government held consultations with both members of the public and industry associations. After the consultation period is over, the proposal is expected to be converted into bill and submitted to the Hong Kong Legislative Council later in the year. The South China Morning Post’s estimate that 93% of the domestic population would be affected by the ban is based on a recent CitiBank survey that found that around 7% – 504,000 people – have enough wealth to cross the threshold for professional investors to achieve.

A representative from the Bitcoin Association of Hong Kong recently argued that “restricting private individuals’ access to bitcoin would go beyond the government’s goals of promoting innovation and financial inclusion.” The proposed restrictions could also extend to Bitcoin ATMs or ATMs, greatly expanding the scope of the existing crypto licensing rules for businesses in Hong Kong.

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