Hong Kong’s central bank has warned digital asset firms against using the term “bank” or describing funds placed with them as “deposits.”
In a statement, the Hong Kong Monetary Authority (HKMA) noted that using these terms violates the city-state’s Banking Ordinance.
The regulator prohibited the use of other related terms, including “crypto asset bank,” “digital asset bank,” and “digital trading bank.” Virtual Asset Service Providers (VASPs) must also not use the term “deposits” to describe client funds or promote misleading products, including “savings plans.” Other terms like “high returns” and “low risk” are also prohibited.
“These descriptions may mislead members of the public into believing that those crypto firms are banks authorized in Hong Kong, to which they can entrust their savings,” the banking watchdog stated.
HKMA further reminded the public that VASPs are not regulated like banks in Hong Kong, and funds placed with such institutions are not protected by the Hong Kong Deposit Protection Scheme. This has become a common global warning, with the U.S. Federal Deposit Insurance Corporation (FDIC) issuing a similar warning.
Hong Kong has been on a mission to become a global digital asset hub. The city-state has implemented enabling regulations for the sector, including a comprehensive licensing regime for VASPs. It has also been pushing banks to work with VASPs.
However, as with any other digital asset-friendly jurisdiction, Hong Kong has had to tread a fine line between promoting Bitcoin adoption and protecting investors following the collapse of major global ‘crypto’ giants.
HKMA’s warning comes amid the implosion of the local exchange JPEX. On Sunday, the exchange announced that it faced liquidity issues due to “unfair treatment by relevant institutions” and bad press. It claimed some of its trading partners had frozen its accounts as it suspended withdrawals for some of its clients.
Authorities swung into action on Monday, arresting six people for conspiracy to defraud over HK$1 billion ($128 million), including two social media influencers. The Securities and Futures Commission had issued an earlier statement accusing the exchange of operating without a license.