China goes over AML law; Hong Kong mulls licensing regime

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Regulatory change is in the air in China, as mainland lawmakers consider a revised anti-money laundering (AML) law to enhance monitoring and analysis of fintech money laundering risks, while Hong Kong’s securities watchdog explores new licensing regulations for over-the-counter (OTC) digital asset services.

On September 9, China’s Legislative Affairs Commission spokesperson Wang Xiang announced possible revisions to the country’s AML law, citing the need to meet the new challenges posed by evolving technologies.

“The rapid development of new technologies and business forms has increased the difficulty of detecting and investigating money-laundering activities,” local news outlet South China Morning Post (SCMP) quoted Wang as saying.

According to the Chinese government, 1,391 individuals have been prosecuted on money laundering-related charges in the first half of 2024.

To counter this worrying trend, the draft revision includes provisions for the central bank to issue guidelines to monitor new money-laundering risks in cooperation with relevant authorities.

Financial institutions would also be required to evaluate and address money-laundering risks posed by new business models, said Wang.

The proposed law changes would also refine the definition of AML with seven types of predicate offenses—underlying crimes that serve as the foundation for money laundering schemes, such as drug trafficking, human trafficking, corruption, fraud, or terrorist financing.

In terms of digital assets, China does not recognize them as legal tender and largely prohibits their circulation in the market.

Last month, the Supreme People’s Court—China’s highest court—announced that “virtual assets” were potential methods to launder money and avoid taxation:

“Virtual assets, transactions, financial asset exchange methods, transfer, and conversion of proceeds of crime can be regarded as ways to conceal the source and nature of the proceeds of crime.”

The ruling also clarified that if the amount of money laundered is more than 5 million yuan ($704,735) and there are multiple acts of money laundering, or it results in losses of more than 2.5 million yuan ($352,368), it shall be considered a “serious circumstance,” and therefore, more severely punishable.

The new draft revision to the AML law will undergo its second round of review during this week’s session of the Standing Committee of the National People’s Congress (NPC).

Meanwhile, in Hong Kong—the only Chinese territory where digital assets are legal—new regulation is also in the pipeline.

Developments in Hong Kong

Hong Kong’s Securities and Futures Commission (SFC), one of the territory’s top financial sector regulators, has sought opinions from industry participants on whether to introduce a new licensing regime for digital asset OTC services—services where investors can buy or sell without relying on public exchanges.

The new regime would see the SFC working with the Customs and Excise Department (C&ED), a government agency responsible for the protection of the Hong Kong Special Administrative Region against smuggling, to supervise companies offering digital asset OTC trading services.

According to an SCMP report, the planned regulations and licensing for OTC services were initially to be the sole domain of the C&ED, under a proposal made public in February.

Alongside the new OTC licensing regime proposal, the SFC has consulted companies in recent months about introducing a new licensing regime for digital asset custodian services.

Citing “people familiar with the matter,” the SCMP reported that discussions about both licenses are still in the early stages and are subject to change.

A statement from an SFC representative said: “To foster the sustainable and responsible development of the virtual assets industry in Hong Kong, the SFC works closely with the government and other regulators in developing a robust, clear and consistent regulatory environment in Hong Kong.”

Since January 2020, the SFC has maintained an “Alert List” of entities that have come to the regulator’s attention due to being unlicensed in Hong Kong but targeting Hong Kong investors.

In August, “suspicious” trading platform ICE Global Professional Station was added to the list, following seven digital asset exchanges being added in July, bringing the total listed to 42. These unlicensed digital asset exchanges are suspected of engaging in fraudulent activities and compromising the safety of investors.

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