HKMA Warns Against Crypto ‘Banks’

The Hong Kong Monetary Authority (HKMA) has issued a stark warning to the public regarding the use of misleading terminology by cryptocurrency-related firms. The financial regulator has expressed concern over crypto businesses presenting themselves as “banks” or labelling their products as “deposits.” According to the HKMA, such practices may potentially breach the Banking Ordinance.

Deceptive Crypto ‘Banks’

The HKMA has become increasingly aware of cryptocurrency firms adopting titles like “crypto bank,” “crypto asset bank,” “digital asset bank,” “digital bank,” or “digital trading bank.” These entities have also been known to offer “banking services” or claim to provide “banking accounts.” In addition, some crypto firms use the term “deposits” to describe client funds and promote “savings plans” as “low risk” with “high returns.” These tactics could mislead the public into believing that these crypto firms are authorized banks in Hong Kong, eligible to safeguard their savings.

However, under the Banking Ordinance, only licensed banks, restricted license banks, and deposit-taking companies collectively known as “authorized institutions” that have received licensing from the HKMA are permitted to conduct banking or deposit-taking activities in Hong Kong. Using the term “bank” in a business name or description, implying that one is a bank or conducts banking activities in Hong Kong, is an offense if not authorized. Furthermore, soliciting deposits without proper authorization is also prohibited.

Vigilance Call

The HKMA has emphasized that crypto firms not holding banking licenses in Hong Kong are not subject to its supervision, and any funds deposited with them are not covered by the Hong Kong Deposit Protection Scheme.

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To help the public navigate these potentially misleading situations, the HKMA advises verifying the authorization status of any entity claiming to be a bank or soliciting deposits in Hong Kong.  The warning underscores the need for vigilance and due diligence when dealing with cryptocurrency-related firms, particularly those that employ misleading language or terminology. The authority’s efforts aim to safeguard the interests of the public and ensure the integrity of the financial sector in Hong Kong.