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Upcoming HK Regulatory Change Gives Chinese State Banks Backdoor Into Crypto

Hong Kong’s recent proposals for a crypto-friendly licensing regime in the region have seen Chinese state banks offering their services to the city’s crypto companies, despite a blanket ban on the mainland.

Hong Kong with Crypto

China’s state-owned banks have been reaching out to Hong Kong crypto firms after the special administrative region decided not to follow the Chinese mainland in implementing a blanket ban on cryptocurrency activities, according to a March 27 report by Bloomberg,

According to insider knowledge, banks such as the Bank of Communications, Bank of China and Shanghai Pudong Development Bank, have been approaching local firms in the crypto sector to make enquiries or offer banking services. This has entailed at least one bank sending sales representatives to visit a company’s office and directly pitch its product.

18 months ago Chinese authorities expanded their previous clampdown on crypto-associated businesses and brought in a comprehensive list of forbidden activities, including banning banks and other financial institutions from providing services related to cryptocurrency.

However, last October the Hong Kong Securities and Futures Commission (SFC) announced that it would not be following the mainland’s lead, and would instead be introducing a bill to license and regulate crypto-related activity. A draft of the new proposals was published last month, calling for public feedback on plans which will allow retail investors to trade on officially sanctioned cryptocurrency exchanges.

The new licensing regime is set to take effect on June 1, and if these reports are correct, would suggest that Beijing supports Hong Kong’s divergence from the authorities’ strict stance on the mainland and desire to position itself as a crypto hub.

In fact, following the closure of several major players in the US crypto-banking sector earlier this month, China may believe that it has a prime opportunity to step in and become a key provider of banking services to the crypto industry.

Coupled with Hong Kong’s obvious crypto aspirations it could see an influx of start-ups choosing to make the region their base of operations, although of course many businesses may still be put off by the geopolitical implications of such a move.

Bloomberg last month reported that officials from China’s Liaison Office have recently been seen mingling at crypto meet-ups in Hong Kong, providing further evidence that Beijing's true stance on crypto is perhaps not as hardline and clear-cut as it may previously have seemed.

Whether global crypto traders would be comfortable dealing with exchanges banked by the Chinese state is another matter, but it will be interesting to Observe how this story develops and who else may step up to fill the gap left by Silvergate and Signature.