Despite assurances from the Hong Kong Monetary Authority (HKMA), virtual asset service providers (VASPs) are facing a rough patch in accessing banking services in the city.
According to Hong Kong Economic Journal, HSBC-owned (NASDAQ: HSBC) financial institution Hang Seng Bank (NASDAQ: HSNGF) noted that digital asset service providers can only access “simple” accounts. Although the report failed to stipulate the extent of services to be provided to VASPs, analysts have highlighted certain banking restrictions for firms in the digital assets industry.
The difficulty for VASPs in accessing financial services is reportedly due to the scarcity of employees at the Securities and Futures Commission (SFC) and the hesitation of Hong Kong’s banks to open their doors to industry players.
“We have active dialogues with digital asset players to exchange views on a range of topics, including but not limited to account opening,” said an HSBC spokesperson. “We remain very engaged in the policies and developments of this nascent industry in Hong Kong.”
To resolve the challenge of banking services for digital asset companies, the HKMA and the China Securities Regulatory Commission have hosted a series of roundtable meetings. Financial institutions in the region have hinted that VASPs are allowed to open accounts, but fears of restrictions on their operations are at an all-time high.
The lack of options led Chinese banks to wade into the space, offering banking services to Hong Kong’s digital currency companies. According to a Bloomberg report in March, the Bank of China Ltd (NASDAQ: BACHY), the Bank of Communications (NASDAQ: BCMXY), and Shanghai Pudong Development Bank are among a growing list of Chinese banks keen on providing banking services in Hong Kong.
“This development is encouraging for both the industry and the broader ecosystem, as it demonstrates a maturing understanding of the crypto sector by traditional finance institutions,” said Julia Pang, head of banking relations at OSL.
One month later, HKMA announced that there are no restrictions on Hong Kong banks offering financial services to digital asset firms, urging them to onboard the service providers. However, the central bank warned that banks should carry out due diligence but avoid using a “one-size-fits-all” approach in account opening applications.
Hong Kong’s banks are proceeding with caution following the collapses of several U.S. banking entities like Signature Bank (NASDAQ: SBNY) and Silicon Valley Bank with large exposures to digital assets.
A digital asset paradise
Hong Kong is coasting toward its objective to be the hub of all things digital assets, despite the challenges in providing banking services. The passage of a new licensing regime and the lifting of the lid for retail investors have piqued the interest of global service providers to establish operational bases in the city.
The government has since launched several initiatives to trigger the mass adoption of digital assets, including the creation of a Web3 task force and the inclusion of a dedicated Web3 fund in its annual budget.
According to Financial Secretary Paul Chan, Hong Kong is expecting over 80 international digital asset firms to be domiciled in the city, with companies already splurging ahead of their formal applications.
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