Despite its dreams of being a crypto hub, Hong Kong banks are rejecting account opening applications from crypto firms.
After Hong Kong’s announced its intention to reclaim its status as a crypto hub, international firms seeking to operate in the jurisdiction are now being pooled in a sea of in-progress applications as basic processes – like opening a bank account – are proving difficult.
According to these applicants, only eight officers at the Hong Kong Securities and Futures Commission (SFC) are handling approximately 80 applications, and even licensed firms are facing complications in opening local bank accounts.
“This probably would have been a different story six or nine months ago,” said Amy Yu, APAC CEO for crypto bank SEBA.
Last November, Hong Kong made a call to action for transforming the city into a global digital asset hub. After announcing that it will relax certain regulations that previously earned the jurisdiction reputation for being crypto-critical, competitors like Singapore and the US have continued their efforts to keep a watchful, regulatory eye on what assets they consider speculative.
Despite the touted friendliness, crypto companies hoping to set up shop in Hong Kong cannot get their basic needs in operating a business met.
Hong Kong’s central bank, the Hong Kong Monetary Authority (HKMA), acknowledges that crypto companies, or Virtual Asset Providers are facing difficulties to get banking access.
While the HKMA has told banks that there are presently no bans on offering banking services (like opening an account) to crypto firms, a roundtable the regulator organised last month on offering Virtual Asset Providers bank accounts, according to an attendee, only seemed to focus on easing up access for firms who already held, or were applying for licenses in Hong Kong.
“It was more like a wish list from the regulator,” said the attendee. “Whether the banks fully embrace it is another matter.”
Meanwhile, a C-suite executive from a Hong Kong-based crypto firm reportedly is still unable to open a Hong Kong bank account, and remains reliant on overseas banking partners.
The firm, according to the executive, currently holds a Type 9 license, allowing the crypto company to carry out asset management activities. Despite holding a license, the executive cites that the company still faces difficulties in on- and off-ramping potential investors due to its non-domestic banking partners.
“It’s not clear to us what extra information the banks need,” she noted. “Internally, they don’t seem sure about what they want from us.”
Another problem that many crypto firms hoping to operate in Hong Kong have found problems in being concise about what they do in their bank account applications, as being upfront may result in a rejected application.
According to venture capital firm Braeside’s founder Tak Lo, “many crypto companies present themselves as other firms other than asset management firms in order to facilitate bank account opening.”
Louie Lee, managing director of Prosynergy, also has faced difficulties, saying that opening bank accounts is an “acute issue” at present, as banks can be “sensitive and restrictive in their approach.”
Lee also hints at the grey areas in Hong Kong crypto regulation, saying “not all crypto-related activities require a license. You may be operating in an unregulated space, but this does not mean it’s illegal.”
Meanwhile, some businesses haven’t been quite lucky enough in gaining a license to legally operate in Hong Kong.
“The process is you apply and you get rejected,” Jehan Chu, founder of crypto venture capital firm Kenetic. As for firms that manage to get accounts? Chu says “six months later you get it shut down for no reason.” The founder added that due to reasons like this, crypto firms prefer to stay low-profile.
Amongst those crypto firms who have successfully obtained Hong Kong bank accounts, they still “have a lot of uncertainty on whether or not they can continue having that account going forward,” said corporate credit card issuer Reap co-founder Kevin Kang.
Sometimes, these crypto firms have found themselves constantly trying to look for other options and opportunities to set up new bank accounts, just for backup. Kang adds that the examination process of transactions by banks aren’t even visible to these crypto firms.
When a transaction from a company is targeted by a bank’s compliance team, the company would not be able to use that account – unless they provide appropriate and sufficient documentation within a period of time of the transactions, at the risk of that transaction getting stopped and sent back.
These firms then often find themselves dedicating resources just to open bank accounts, as they may be subject to the whims of bank account providers.
In order to soften the blow, firms sometimes have opted to buy expensive insurance or investment products – solely to establish a more valuable relationship to their banking partner of choice.
While some crypto businesses can make such an investment with for-profit banks, unfortunately many startups cannot afford to do the same.
The crypto industry isn’t the only target of difficulties in bank account opening.
Money-service operators who hold licenses from the Customs and Excise Department which allowed them to legally exchange funds even faced issues, with banks hesitant to serve them due to perceived risk exposure in money laundering and terrorist financing.
According to Kang, regulators can potentially raise the confidence for banks in providing services to clients who they are uncomfortable with by rewriting certain policies.
Despite the troubles, the crypto industry still remains optimistic in pushing towards Hong Kong’s goal to be a global digital asset hub, and sees positive development in discussions between the industry and local regulators.
Some local players like virtual bank ZA Bank have stepped up, putting itself forward as the go-to bank for Web3 firms. According to ZA co-head of retail banking Devon Sin, after the collapse of crypto-friendly bank Silvergate, “inquiries have increased enormously.”