BitcoinRegulation

Hong Kong Gov Says Bitcoin Regulation Unneeded, Highly Speculative & Not Currency

The Hong Kong Secretary for Financial Services and the Treasury, K C Chan, said today that Hong Kong Government did not consider bitcoins currency, and would not at this time regulate the cryptocurrency. The Hong Kong official was responding to questions from Legislator Leung Yiu-chung in Hong Kong’s Legislative Council.

Leung was querying Chan what the govermnent was going to do in the wake of the shutdown of MyCoin, and the alleged loss of HK$3 billion among 3000 investors. The legislator asked how the Police would investigate such cases, and whether the government would regulate bitcoin industry and investigate bitcoin exchanges and purchases made with bitcoins.

The legislator’s question included the following:

(1) of the number of the investors concerned who have reported tothe Police so far and the total amount of money involved; how the Police handle such cases and what progress they have made; whether the Police have completed the handling of some of such cases; if so, of the outcome; and

(2) given that the Government has repeatedly reminded the public of the risks involved in trading bitcoins and reiterated that bitcoins are no more than a kind of “commodities” created in the virtual world, whether the authorities have grasped the situations in respect of the trading of bitcoins, as well as their being used for making purchases in Hong Kong; whether the authorities will proactively investigate the operation of bitcoin exchange platforms, and whether they will consider enacting legislation to regulate or ban the relevant activities; if they will, of the details; if not, the reasons for that?

Chan replied that bitcoins are not legal tender, did not qualify as an e-currency, and were considered by the government to be highly volatile virtual commodities for individual speculative activities.

The Financial Secretary also noted that the Hong Kong Government had repeatedly warned the public about the significant risks associated with exchanging, trading or holding such digital commodities for speculative purposes.

Chan indicated that, regardless of the involvement of such virtual commodities like bitcoin, existing Hong Kong laws provide punishment for criminal acts, including money laundering, terrorist financing, fraud, pyramid schemes and cyber-crimes.

The full text of the Financial Secretary’s response is below:

As repeatedly pointed out in our reminders to the public through the media, and in my reply to a question raised by the Hon Chan Kam-lam at the meeting of this Council held on January 8, 2014, bitcoins are not a legal tender, and their value is not backed by any physical items, issuers or the real economy.

Their pricing is highly volatile. We have also sounded relentless warnings of the high risks involved in exchanging, trading or holding such kind of virtual commodities for speculative purposes. The Investor Education Centre and the Consumer Council have reminded the public from time to time that trading bitcoins may result in monetary losses, and that holders may not be able to obtain a refund of their monies should a virtual commodity collapse or those who deal in it cease to operate.

We have been discouraging people from engaging in such speculative activities or transactions without considering the risks involved. The Government’s reply to the two parts of the question is as follows:

(1) According to the information provided by the Police, the Police received the relevant complaints since February 11, 2015. The complainants had been participating in the trading of bitcoins through a local company since early 2014.

The complainants found that the accounts opened with the company could no longer be operated, and no withdrawal from and trading of bitcoins through the accounts were allowed since December 2014. The complainants suspected that it might be a fraud case. To date, over 100 persons have reported their cases to the Police, and the amount involved totalled $180 million.

The Commercial Crime Bureau of the Police is investigating the case, and has searched various locations and seized a number of computers, tablets, mobile phones, account records, etc.

Two men and four women, aged between 34 and 55, were arrested for conspiracy to defraud. All the arrested persons have been released on bail pending further investigation. The Police will continue with the investigation.

Those who might have fallen prey to the fraud are urged to report the cases to the Police.

(2) Given that the circulation of bitcoins varies from place to place, we note that supervision over such virtual commodities also varies, depending on the market situations. According to our understanding, bitcoins have not yet been accepted widely as a medium of payment in Hong Kong as compared with other places, and their circulation as a medium of exchange in daily life or business transactions is insignificantly limited. There are only a very small number of vendors claiming that they would accept bitcoins as a medium of payment.

We therefore consider that bitcoins and other kinds of virtual commodities do not qualify to be an e-currency, having regard to their nature and current circulation in Hong Kong. They are, in most cases, be regarded generally as commodities or virtual commodities for individual speculative activities. It is also unlikely that bitcoins, given its circulation, will pose a significant threat on Hong Kong’s financial system.

As such, the Government does not consider it necessary to introduce at the moment new legislation to regulate trading in such virtual commodities or prohibit people from participating in such activities.

Like most jurisdictions, Hong Kong does not have any targeted regulatory measures on virtual commodities specifically in terms of their safety or soundness, and the trading platforms or operators of such commodities. That said, our existing laws provide for sanctions against unlawful acts, such as money laundering, terrorist financing, fraud, pyramid schemes and cyber-crimes, whether or not these virtual commodities are involved. For the purpose of crime prevention and detection, the Police conduct patrols, including search for relevant information via public platforms on the Internet where necessary.

The Police will take enforcement action if they find information which involves criminal conduct.

Meanwhile, the financial regulators (including the Hong Kong Monetary Authority, the Securities and Futures Commission, the Office of the Commissioner of Insurance, and the Customs and Excise Department) have required financial institutions to assess stringently money laundering and terrorist financing risks associated with virtual commodities, according to the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO). Such institutions are required to comply continuously with customer due diligence and record keeping requirements when establishing or maintaining business relationships with customers or clients who are operators of any schemes or businesses relating to virtual commodities.

Under the Organized and Serious Crimes Ordinance, the Drug Trafficking (Recovery of Proceeds) Ordinance or the United Nations (Anti-Terrorism Measures) Ordinance, any individuals (including financial institutions, virtual commodity dealers or operators), shall, on any occasion, report any suspicious activities in relation to money
laundering or terrorist financing to the Joint Financial Intelligence Unit (JFIU) set up by the Police and the Customs and Excise Department (C&ED). A failure to disclose such suspicious transactions to the JFIU may amount to an offence.

Also, any operators whose transactions involve money changing or remittance services are required to apply to the Commissioner of Customs and Excise for a “money service operator” licence under the AMLO.

In relation to that Ordinance, the C&ED conducts regular patrols, including cyber patrols, to combat unlicensed operation of a money service. Among the patrols, it will check whether any bitcoin-related platforms are involved in unlicensed money service business.

The Government and financial regulators will keep a close watch on the development of bitcoins and other virtual commodities, and maintain contacts with their counterparts in other places through active participation in meetings of the relevant international organisations (such as the Financial Action Task Force).

Given the highly speculative nature of bitcoins, I would like to once again remind the public to exercise extra caution and be risk-conscious when considering participating in the trading of virtual commodities such as bitcoins to avoid losses.

(Source: Hong Kong Government Release)

Read more about government regulations in Hong Kong and other countries at Merkletree.io – a site that tracks the evolving regulatory landscape of cryptocurrencies and blockchain technology around the world.

merkletree-io

Journalist, policy analyst, and evangelist of new, disruptive technologies including big data analytics, Internet of Things, and cryptocurrencies. Internet industry veteran with regional c-suite experience, and journalist credentials earned at internet.com, Internet World magazine, and Mecklermedia Corporation.
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