The HKMA warned against unauthorized use of the term “bank” by crypto firms, emphasizing legal action and consumer protection.
The Hong Kong Monetary Authority (HKMA) has issued a severe warning to cryptocurrency firms, advising them to avoid the exploitation of the term “bank” in their marketing and operations within Hong Kong.
This is in response to reports that two crypto companies located overseas were involved in activities that fraudulently suggested they were licensed banking institutions.
The HKMA underscored that such actions could potentially mislead the public and contravene the region’s Banking Ordinance, which strictly regulates the use of banking terminology.
Can Hong Kong crypto firms be classified as banks?
In response to incidents involving two overseas crypto firms that operate in Hong Kong, the HKMA has issued an alert.
One of these organizations asserted that it was a “bank,” while another referred to one of its offerings as a “bank card.”
The HKMA has expressed concern that these representations may lead to consumers believing that these firms are regulated entities that are authorized to provide banking services in Hong Kong.
Only institutions authorized by the HKMA, such as licensed banks, restricted license banks, and deposit-taking companies, are legally permitted to use the term “bank” to characterize their operations or products under Hong Kong’s Banking Ordinance.
“Other than licensed banks in Hong Kong, it is an offence for any person to use the word “bank” in the name or description under which the person carries on business, or makes any representation that the person is a bank or is carrying on banking business in Hong Kong.”
The use of this term without authorization is a criminal offense.
The central bank emphasized that unlicensed crypto firms are not subject to its supervision and cautioned the public to meticulously verify the claims made by such entities.
The HKMA observed that the financial ecosystem of the region is at risk of being undermined by the misuse of banking terminology, which could expose consumers to substantial risks.
This concern is further exacerbated by the increasing number of crypto firms that are entering the Hong Kong market as the city endeavors to establish itself as a prominent global crypto center.
Public Guidance and Legal Framework
The central bank clarified that the sole entities permitted to conduct banking or deposit-taking activities in the region are authorized institutions.
Additionally, any organization that employs the term “bank” in its branding or marketing without the appropriate authorization is susceptible to legal repercussions.
The HKMA directed the public to its Register of Authorized Institutions, a comprehensive online database for verifying the credentials of entities professing to provide banking services, in order to protect consumers.
It also urged individuals with concerns to contact its Public Enquiry Service hotline.
Not only do misleading representations undermine consumer trust, but they also jeopardize the reputation of Hong Kong’s financial system, which is distinguished by its rigorous regulatory supervision.
The country’s increasing reluctance to accept cryptocurrency is a result of the dangers it poses. A sophisticated crypto romance swindle syndicate that defrauded victims out of $46 million across multiple countries was recently dismantled by the Hong Kong police.
The syndicate employed sophisticated deepfake technology to create convincing personas with AI-generated images and manipulated video interactions in order to entice victims—primarily men—into fabricated romantic relationships.
Subsequently, victims were encouraged to invest in fraudulent cryptocurrency platforms, which were further supported by fabricated transaction records that purportedly demonstrated substantial returns.
27 individuals were apprehended, with some earning as much as $266,000 per month from the scheme.
Hong Kong is effectively managing the tension between regulation and innovation in the face of these challenges.
The Securities and Futures Commission (SFC) of Hong Kong has recently granted HKVAX its third crypto exchange license under its new regulatory framework. This license follows the previous licenses granted to OSL and HashKey.
The SFC intends to issue additional licenses by the end of the year following examinations to guarantee regulatory compliance, with 11 additional platforms currently under review.