In Hong Kong, there is currently no specific legislation directed at regulating cryptocurrency. Bitcoin and similar currencies are designated as virtual commodities and not legal tender or securities. [1] Hong Kong governmental authorities have warned the public against investing in cryptocurrency. The Hong Kong Securities and Futures Commission (SFC) has stated the ICO tokens will be regulated as securities under Hong Kong’s Securities and Futures Ordinance and must be licensed and authorized by the SFC. [2] There are currently no regulations on the private possession or transfer of cryptocurrencies between private parties as long as the tokens are obtained and transferred in good faith and do not violate anti-money laundering laws.
On November 3, 2020, the chief executive of the SFC said that Hong Kong would soon regulate all cryptocurrency trading platforms, regardless of if they trade securities. Before this, platforms operating in Hong Kong that offered trading of at least one security token had the option to be licensed by the SFC [3], but the SFC’s 2020 statements show the Commission’s intent to widen their regulatory approach. The SFC stated that “once this new regime is in place, all virtual asset trading platforms in Hong Kong would be regulated, supervised and monitored under one of two regimes: the existing opt-in framework we introduced last year, or the proposed new licensing approach being announced today.” [4] The new licensing “catch-all” will be proposed as an addition to Hong Kong’s anti-money laundering regulation. [5]
This new legislation would initially ban retail investors from trading cryptocurrency. [6] The new licensing requirement would require cryptocurrency trading platforms to only offer services to “professional investors” until the market becomes “more mature.” [7] If this proposal becomes law, it will take Hong Kong from having minimal cryptocurrency regulation to outright banning retail crypto investors.
P.S. Insights on Cryptocurrency Legal Issues
Most jurisdictions and authorities have yet to enact laws governing cryptocurrencies, meaning that, for most countries, the legality of crypto mining remains unclear.
Under the Financial Crimes Enforcement Network (FinCEN), crypto miners are considered money transmitters, so they may be subject to the laws that govern that activity. In Israel, for instance, crypto mining is treated as a business and is subject to corporate income tax. In India and elsewhere, regulatory uncertainty persists, although Canada and the United States are relatively friendly to crypto mining.
However, apart from jurisdictions that have specifically banned cryptocurrency-related activities, very few countries prohibit crypto mining.
Our Freeman Law Cryptocurrency Law Resource page provides a summary of the legal status of cryptocurrency for each country across the globe with statutory or regulatory provisions governing cryptocurrency. The globe below provides links to country-by-country summaries:
Is cryptocurrency legal in Hong Kong?
Do you have questions about cryptocurrency, digital currencies, or blockchain technology? Freeman Law can help with digital currencies, tax planning, and tax compliance. Contact us now to schedule a consultation, or call (214) 984-3410 to discuss your cryptocurrency and blockchain technology concerns.
[1] Gaven Cheong, Peter Brewin, Adrian Clevenot, Blockchain & Cryptocurrency Laws and Regulations (2021) – Hong Kong Global Legal Insights.
[2] Id.
[3] Securities and Futures Commission, SFC adopts new approach to virtual asset trading platforms, (November 6, 2019).
[4] Wolfie Zhao, Hong Kong’s SFC will require all crypto exchanges to be regulated, The Block (November 2, 2020).
[5] Reuters, Hong Kong wants cryptocurrency trading platforms to be regulated – SFC, The Business Standard (November 3, 2020).
[6] Kelly Le, Hong Kong plans to ban retail investors from trading cryptocurrency, Forkast (February 19, 2021).
[7] 2.18(a) of the Public Consultation on Legislative Proposals to Enhance Anti-Money Laundering and Counter-Terrorist Financing Regulation in Hong Kong
