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HSBC has a history of money laundering blunders. It was fined in the US a decade ago for supporting Latin American drug cartels and in the UK in 2021 for a string of failures, including providing services to gang leaders.
As such, it is understandable that the bank and its peer Standard Chartered may be reluctant to include cryptocurrency exchanges as clients in Hong Kong.
“Like come on. They’re here to commit crimes,” Samuel Lim, Binance’s chief compliance officer at the time, said of some of its clients in a 2020 chat. court filing Announcement by the Commodity Futures Trading Commission – This announcement has not been welcomed by the large and heavily regulated banks, either for them or for their competitors.
Now that the SEC is suing Binance and Coinbase in an expanded crackdown on the cryptocurrency industry, the risk of providing basic banking services to exchange operators looks greater than ever. And the potential rewards seem small.
Unless it involves getting Hong Kong regulators on their side. Hong Kong, the birthplace of the stablecoin Tether and home to the now-defunct exchange FTX, is striving to become a global cryptocurrency hub.
But Gaven Cheong, a cryptocurrency fund advisory partner at PwC law firm Tiang & Partners, said many cryptocurrency exchanges “do not have access to bank accounts, which makes things difficult”. “If you set up a bank account for a cryptocurrency exchange, you have to worry about the inflow of money.”
As a result, Zhang said, the banks were concerned about protecting themselves from charges of handling the proceeds of crime. But Hong Kong regulators appear to be actively trying to bring in cryptocurrency businesses, including convincing banks to make life easier for exchanges and meeting founders who face crackdowns in the United States.
Tyler Winklevoss’ New York cryptocurrency exchange Gemini was sued by the SEC in January, tweet Held a “great meeting” with Hong Kong’s Securities and Futures Commission last week and said: “Hong Kong is ready to take a leadership role in the cryptocurrency space.”
Few in Hong Kong’s financial community seem to know why Hong Kong wants to attract cryptocurrency companies, given the industry’s series of devastating crashes and the U.S. moving in the opposite direction.
Some have speculated that Beijing decided to use Hong Kong as a testing ground where mainland China might one day allow the return of cryptocurrencies. Others said Hong Kong was concerned that its status as a financial center was declining, in part because of Singapore’s rise as a rival to Asia’s financial hub.
Whatever the reason, the pressure from the HKMA is real. Regulators have called HSBC, Standard Chartered and other banks into a series of meetings to ask why they are not providing basic services that would allow cryptocurrency exchanges to rent offices and pay staff in Hong Kong.
It wants them to consider offering banking services to cryptocurrency firms that have not yet been issued licenses by Hong Kong’s SFC, especially if they are applying for one, it said in a letter to banks in April. An executive at a cryptocurrency company applying for a license said the letter “is one of the most immediate regulatory concerns I’ve ever seen.”
But it cannot provide meaningful guarantees. If a bank is found to be dealing with the proceeds of crime, action will be taken by the Hong Kong police or possibly by law enforcement agencies such as the US Department of Justice (rather than the HKMA). This puts banks in an awkward position. If they keep Hong Kong’s political and regulatory elite happy, they risk putting themselves in the U.S. Department of Justice’s line of fire.
The alternative is to alienate Hong Kong and risk losing the goodwill of this economically and strategically vital market. Their best hope may be that Hong Kong’s strict regulatory approach to cryptocurrencies will kill their appeal.
So far, HSBC appears to be performing a delicate dance, showing up at meetings with regulators and making at least some of the right voices, while its senior executives remain cautious. But it cannot do so indefinitely. In the end, it’s not just about cryptocurrencies. For HSBC’s leaders, it is a test of how wisely they respond to competing demands from the bank’s eastern and western bases at a time when political relations are fraying. In the years to come, the problem will take on different forms, and it will likely become even worse.
kaye.wiggins@ft.com