Key Takeaways
- The body submitted concerns to regulators regarding what it characterised as a potential “hard start” scenario, where existing firms would need complete licensing by the effective date of new rules or suspend activities while applications undergo review.
- The association voiced support for integrating digital assets into the financial system
In a significant development, a leading Hong Kong finance industry association has expressed concern that the city’s planned cryptocurrency licensing expansion could inadvertently force legitimate digital asset managers to halt operations if regulators implement new requirements without transition provisions.
The Hong Kong Securities & Futures Professionals Association submitted concerns to regulators regarding what it characterised as a potential “hard start” scenario, where existing firms would need complete licensing by the effective date of new rules or suspend activities while applications undergo review.
“Legitimate businesses may be forced to suspend operations while awaiting approval,” the association wrote in its consultation response. “We strongly urge the government to implement a 6 to 12-month deeming period for existing practitioners who submit their applications prior to the commencement date.”
The proposed deeming period would allow firms that file license applications before the regime’s launch to continue operations while regulators process submissions. This approach aims to prevent scenarios where compliant companies face operational shutdowns due to administrative processing delays rather than regulatory deficiencies.
The association emphasised that application complexity and potential regulatory backlogs heighten risks that legitimate managers would be compelled to cease activities despite intending full compliance. A grace period would mitigate these risks by maintaining business continuity during the transition to enhanced oversight, the body had noted.
Hong Kong’s Securities and Futures Commission and the Financial Services and the Treasury Bureau are currently soliciting feedback on expanded licensing frameworks covering virtual asset dealing, advisory, and management services. The proposals would extend regulatory reach beyond the city’s current oversight structure, which primarily addresses cryptocurrency trading platforms.
The industry group further expressed support for strengthened supervision in principle but warned that enforcement without accommodation for existing operators could generate operational disruptions, regulatory processing bottlenecks, and business continuity failures for firms already active in Hong Kong’s digital asset sector.
The consultation documents do not yet specify an implementation date for the new virtual asset licensing requirements, leaving timeline uncertainty for firms attempting to prepare for regulatory changes.
Beyond transition mechanics, the industry group also addressed broader aspects of Hong Kong’s evolving crypto regulatory perimeter. The association voiced support for integrating digital assets into the financial system while cautioning that inflexible implementation could discourage institutional participation and deter compliant firms from Hong Kong markets.
Separately, the same organisation commented Monday on Hong Kong’s planned adoption of the OECD’s Crypto Asset Reporting Framework(CARF), a tax reporting system designed to capture cryptocurrency transactions that fall outside traditional financial account reporting mechanisms.
CARF would require crypto-asset service providers to collect and report detailed user and transaction information, with data automatically shared among participating jurisdictions. The framework aims to close gaps in existing tax reporting by addressing crypto-specific activities.
While backing CARF’s general direction, the association warned that poorly designed requirements could expose firms to liability and operational hazards. It recommended reasonable penalties for unintentional violations and graduated enforcement approaches distinguishing administrative errors from deliberate non-compliance.
The group also addressed implementation logistics, welcoming electronic filing capabilities but cautioning that reliance on manual XML uploads could introduce avoidable operational risks for reporting entities.
Regarding mandatory registration for Reporting Crypto-Asset Service Providers with connections to Hong Kong, the association acknowledged benefits for ensuring competitive fairness and preventing unregulated operators from undercutting compliant firms. Mandatory registration would also help the Inland Revenue Department identify all service providers operating in or connected to the city.
However, the association suggested that uniform requirements might impose excessive burdens on firms filing nil returns with no reportable activity. “We recommend a lite registration or a simplified annual declaration process for RCASPs that anticipate filing Nil Returns, to reduce administrative costs while still satisfying the IRD’s oversight requirements,” the submission stated.
