HKMA Cracks Down On Crypto ‘Banks’ With Warning Against Misleading Claims

Key Points:

• The HKMA issues a warning to virtual asset institutions using misleading “bank” terminology.
• Only licensed banks and authorized institutions can operate as banks in Hong Kong, with legal implications for violators.
• The public is cautioned that deposits with non-recognized virtual asset institutions lack protection.

The Hong Kong Monetary Authority (HKMA) has issued a stern warning on its official website, cautioning virtual asset institutions against making deceptive claims of being “crypto banks,” “virtual asset banks,” “digital asset banks,” “digital banks,” or “digital transaction banks.”

These institutions have also been cautioned against promoting their services as “banking services” or “bank accounts,” using the term “deposit” to describe customer funds, and advertising “savings plans” as “low risk” with “high returns.”

The HKMA‘s warning underscores that such practices could potentially violate the Banking Ordinance. According to this ordinance, only licensed banks, restricted license banks, and deposit-taking companies, collectively referred to as “authorized institutions,” holding licenses from the HKMA are permitted to conduct banking operations and accept deposits in Hong Kong.

The ordinance also makes it clear that anyone other than an authorized institution who operates under the name “bank” or suggests that they are involved in banking activities in Hong Kong commits an offense. Accepting deposits from the public without authorization is likewise an offense.

Additionally, the HKMA has reminded the public that virtual asset institutions not recognized as Hong Kong banks do not fall under the HKMA’s regulatory oversight. Consequently, funds deposited with such institutions or platforms are not protected by the Hong Kong Deposit Protection Scheme, emphasizing the importance of due diligence and cautious investment practices within the virtual asset sector.

The HKMA’s decisive stance serves as a safeguard against deceptive practices within the virtual asset industry, aimed at protecting consumers and upholding the integrity of the banking sector in Hong Kong.

Banks are hesitant to work with cryptocurrency exchanges because they are concerned about possible punishment for money laundering and other illicit actions, despite recent encouragement from Hong Kong’s banking regulator.

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