Hong Kong's banking regulator, the Hong Kong Monetary Authority (HKMA), is applying pressure on HSBC, Standard Chartered and Bank of China — who hold a special role as issuers of the city’s currency — to accept crypto exchanges as clients, despite the regulatory crackdown on the crypto industry in the U.S. 

At a meeting in May, the HKMA questioned the banks on their reluctance to onboard crypto exchanges as clients, according to sources familiar with the matter, the Financial Times reported. In a letter dated April 27 seen by the Financial Times, the HKMA stated that due diligence on potential customers should not “create undue burdens,” particularly “for those setting up an office in Hong Kong to look for the opportunities here.” 

On the same date, in a blog post signed by Arthur Yuen, the watchdog’s deputy chief executive, the regulator said it expects that “regulated virtual asset service providers (VASPs) will be able to successfully apply for a bank account through a reasonable process.” The HKMA also said banks should support licensed crypto firms with “their legitimate need for bank accounts,” according to a Bloomberg report.  

Hong Kong's crypto ambitions

Hong Kong has a history as a crypto center, and the HKMA's encouragement for banks to embrace crypto exchanges reflects the challenges faced by Hong Kong as it seeks to reestablish itself as a global hub for the crypto industry. While Beijing's crypto crackdown diminished Hong Kong's position, the government has expressed a desire to foster the right environment for digital assets firms. The introduction of a new licensing regime for crypto platforms this month is part of the government's efforts to attract more crypto groups to the city.

Despite high-profile failures, such as the collapse of FTX, which once had its base in the city, Hong Kong remains enthusiastic about the sector. The banks don’t have a ban on crypto clients. However, there is resistance from senior executives at traditional banks who hold a conventional banking mindset, wary of prosecution over potential illegal activity. 

“HKMA encouraged the banks to not be afraid,” a person with knowledge of the discussion said, according to the Financial Times. “There is resistance from a conventional banking mindset. We are seeing some resistance from senior executives at traditional banks.”

One of the bank's executives said they were torn between wanting “to ensure the development of that industry if it’s a policy of the Hong Kong government” and worrying they might be “taken to task on anti-money laundering or know-your-customer” issues, the Financial Times reported.

The recent lawsuits filed by the U.S. Securities and Exchange Commission against major crypto exchanges like Binance and Coinbase have added to the banks' concerns.

Standard Chartered told the Financial Times it had “regular dialogue with our regulators on different subjects." HSBC said it was “very engaged on policies and developments of this nascent industry in Hong Kong” and Bank of China declined to comment to the FT.