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HSBC has a history of money laundering blunders. The company was fined in the US a decade ago for its role in enabling drug cartels in Latin America, and in the UK in 2021 for a series of failures, including serving a criminal gang leader. Ta.
Therefore, it is understandable that fellow bank Standard Chartered is reluctant to accept Hong Kong's crypto exchanges as customers.
“Come on, come on,” Binance’s then-chief compliance officer Samuel Lim said of some customers in a 2020 chat, according to a court filing by the Commodity Futures Trading Commission. Such statements will do little to gain support for Binance or Binance, which will become a rival to the heavily regulated major banks.
Now that the U.S. Securities and Exchange Commission is suing Binance and Coinbase for expanding its crackdown on the crypto industry, the risks for exchange operators to provide even basic banking services are greater than ever. appear. And the potential rewards seem small.
However, getting Hong Kong regulators on your side is a different story. Hong Kong, the birthplace of stablecoin Tether and the former home of now-defunct exchange FTX, is poised to become a global cryptocurrency hub.
However, many crypto exchanges “don't have access to bank accounts, which makes it difficult,” said Gaven Cheong, a partner at PwC-affiliated law firm Tiang & Partners who advises on crypto funds. Ta. “When you set up a bank account for a crypto exchange, you have to worry about the flow of incoming funds.”
As a result, banks are concerned about protecting themselves from accusations regarding their handling of criminal proceeds, Chong said. But Hong Kong's watchdog appears to be actively trying to bring in crypto business, including appeasing banks to make life easier for exchanges and meeting with founders facing crackdowns in the US. is.
Tyler Winklevoss, whose New York cryptocurrency exchange Gemini was sued by the SEC in January, tweeted Last week, he described an “excellent meeting” with the Hong Kong Securities and Futures Commission and said “Hong Kong is ready to lead in the crypto space.”
Few in Hong Kong's financial community seem to know why the city would want to attract crypto companies, given a series of devastating industry failures and the United States moving in the opposite direction.
Some have speculated that the Chinese government may have decided to use Hong Kong as a testing ground for how mainland China could one day allow the resurgence of cryptocurrencies. Some say they fear Hong Kong's role as a financial center is declining, in part due to the rise of Singapore as a rival Asian financial hub.
Whatever the reason, the pressure from the Hong Kong Monetary Authority is real. The regulator has summoned HSBC, Standard Chartered and other banks to a series of meetings to explain why crypto exchanges are not providing basic services that allow them to rent offices and pay staff in the region. Asked.
In an April letter to banks, the Hong Kong SFC urged banks to consider providing banking services to crypto companies that have not yet been granted a license, especially if they are in the process of applying for a license. Ta. An executive at a crypto company applying for a license said the letter was “one of the most direct regulatory issues I've ever seen.”
But it cannot provide meaningful reassurance. If a bank is found to be handling the proceeds of crime, action will likely be taken by law enforcement agencies such as the US Department of Justice, rather than the Hong Kong police or, in some cases, the HKMA. This puts banks in an awkward position. If they continue to please Hong Kong's political and regulatory elites, they risk putting themselves in the firing line of the Justice Department.
The other option is to alienate Hong Kong and risk losing credibility in a financially and strategically important market. Their best hope may be that Hong Kong's strict approach to crypto regulation will kill its appeal.
So far, HSBC appears to be making subtle moves, attending meetings with regulators and making at least some decent statements, while senior executives remain cautious. But you can't do that indefinitely. After all, it is more than just a cryptocurrency. For HSBC's leaders, this will be a test of how wisely they can manage competing demands from the bank's twin eastern and western hubs in the midst of a political rift. This problem will manifest itself in different ways and perhaps more acutely in the coming years.
kaye.wiggins@ft.com
