Public Consultation on Legislative Proposals to Enhance Anti-Money Laundering and Counter-Terrorist Financing Regulation in Hong Kong
On 3 November 2020, the Hong Kong Securities and Futures Commission (SFC) together with the Financial Services and the Treasury Bureau (FSTB) announced a proposal to establish a mandatory licensing regime for cryptocurrency exchanges, and to prevent non-institutional investors from buying or selling Bitcoin.
Response from the Bitcoin Association of Hong Kong
The Bitcoin Association is submitting a response to this public consultation, which we encourage everyone to do. You can find the details in the proposal, submissions will be accepted until 31 January 2021.
Dear Sir or Madam,
We are submitting our views on the Legislative Proposal to enhance Anti-Money Laundering and Counter-Terrorist Financing Regulation (the Proposal).
We are 香港比特幣協會 the Bitcoin Association of Hong Kong, a community-driven organization founded in 2014 to promote, educate and foster Bitcoin and its technology in Hong Kong. We represent individuals and organizations that use Bitcoin and offer related products and services. Over the years we have organized and co-hosted close to 300 events, including industry conferences, hackathons and fairs.
Since December 2014 Bitcoin has been regarded as a virtual commodity, and as such has been subject to regulation by the Customs & Excise Department (C&ED). Bitcoin is neither regarded as money, nor as a security or futures contract. This is not true for all cryptographic tokens, which may resemble securities, futures, payment vehicles, stored value facilities, debt obligations, customer loyalty programs or other more creative arrangements.
As our members have pointed out as early as 2018, the definition of a “Virtual Asset” does not make any meaningful distinctions between such mechanisms. In fact, the only common denominator for “Virtual Assets” seems to be the existence of a trading pair to Bitcoin through a “Virtual Assets Service Provider,” commonly referred to in the media as a cryptocurrency exchange.
Firstly we believe it is most appropriate to regulate each phenomenon according to its own facts, as is already the case. “Virtual Assets” representing securities and futures are already under the supervisory regime of the SFC, while those constituting currencies or stored value facilities are already under scrutiny from the HKMA, and virtual commodities are regulated by C&ED. We believe it is not helpful to define a token as both a “Virtual Asset” and something else, while placing it under two contradictory regulatory regimes from two departments at the same time.
Under the Proposal a very broad range of activity would suddenly fall under the supervision of the SFC, which we do not think is a suitable arrangement under the legal principles that Hong Kong operates under as well as practical concerns.
More importantly, we believe it is paramount that Bitcoin remains accessible to every Hong Kong resident. Any barrier put in place to restrict the sale or purchase of Bitcoin needs to be reasonable and well justified. Individuals as well as corporates need to be able to use and accept Bitcoin as payment and calculate their tax obligations easily, as is the status quo. There is no justification for why a resident’s interaction with Bitcoin should be fundamentally different to interaction with precious metals, gift cards or foreign currency.
“No foreign exchange control policies shall be applied in the Hong Kong Special Administrative Region. The Hong Kong dollar shall be freely convertible. Markets for foreign exchange, gold, securities, futures and the like shall continue.” - Article 112 of the Basic Law
We fear that restricting non-institutional investors from converting their Bitcoin into Hong Kong dollars constitutes capital controls. At a time where ordinary residents and government officials are denied access to basic banking services, we must not further restrict access to tools that reduce dependency on foreign institutions.
According to a 2020 study by Citibank, only about 1.3% of the population (100,000 individuals) qualify for the status of ‘institutional investor.’ Restricting access to Bitcoin to all other Hong Kong residents comes close to a blanket ban on Bitcoin and is without precedent among FATF members.
As such, we strictly oppose the Proposal and its definition of “Virtual Assets.” We suggest that instead of delegating a broad and varied field of contracts to a single department, the HKMA, C&ED and SFC each retain jurisdiction over their own respective fields. Any potential future regulatory loopholes or uncertainties can and should be addressed by the relevant departments.
Submit your views
You are welcome to copy, change or amend the above text and submit it as your own, independent of whether you are an individual or instution and regardless of your affiliation with the Bitcoin Association. If you would like to further go on the record, please write us at [email protected] with a hyperlink or pdf of your response. We will collect them here:
- Bitcoin Association (as submitted electronically)
- Fintech Association
- Fintech Association
- Global Digital Finance
- Joseph Wang
- Leo Weese
- Group of Fintech Guys
79 individuals and organizations took part in the consultation, most notably in addition to the above:
- Baker & Mckenzie
- Diginex Limited
- Hashkey Group
- HK Bitcoin ATM
- Hong Kong Digital Asset Exchange
- Hong Kong Virtual Asset Exchange
- King & Wood Mallesons
- ONC Lawyers
- PricewaterhouseCoopers Limited