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Hong Kong Banks Shun Bitcoin, Driving Startups to Seek Foreign Banks

Last Updated March 4, 2021 5:01 PM
Lester Coleman
Last Updated March 4, 2021 5:01 PM

Hong Kong banks have frozen and closed accounts of bitcoin businesses, forcing the companies to open foreign accounts, according to the South China Morning Post .

A representative of Hang Seng Bank advised the Gatecoin exchange on Sept. 15 that its account was suspended, without explanation.

Bank Freezes Account Without Notice

Thomas Glucksmann, Gatecoin’s marketing head, said the company had tripled its customer base in a two- to three-month period when the bitcoin price was rallying, and that the bank’s action caused a major disruption.

This was the first time a bank had frozen its account without prior notice, he said. Fubon Bank soon imposed a daily transaction limit that did not meet Gatecoin’s needs and effectively disabled the account, Glucksmann said.

While one of bitcoin’s missions is to exit the traditional banking system, new bitcoin buyers cannot purchase bitcoin without a local bank account.

Efforts To Comply Fall On Deaf Ears

Gatecoin has attempted to be the most AML compliant, transparent and strict exchange with banking partners, Glucksmann said, but these efforts have failed to come to fruition.

He said Gatecoin has always made sure it could associate every bank transfer with the name of the client that has registered. Gatecoin sent customers an email advising them transfers were suspended until the situation could be resolved. Gatecoin’s announcement alarmed some customers, who contacted the police out fear that Gatecoin would end up like Mt.Gox, the Japanese exchange that collapsed in 2014.

Banks Respond

Hong Kong banks told the Post they follow strict regulatory requirements on accounts but most did not directly address bitcoin-related businesses.

Hang Seng Bank said it does not comment on individual cases. Fubon Bank said it could not comment on information about clients. The bank said it would apply customer due diligence measures in a balanced manner and improve communications with customers on procedures and account opening requirements.

An HSBC spokesperson said the bank had a limited appetite for virtual currency exchanges. The spokesperson said HSBC does welcome startups, which comprise 70% of new accounts per month.

The Hong Kong Monetary Authority (HKMA), Hong Kong’s de facto central bank, disputed the assertion that a large number of businesses failed to open bank accounts. A spokesperson for the bank said the average account opening rejection rate was less than 5 percent monthly.

Bitcoiners Seek Alternative Banks

Gatecoin chose to work with a European payments processor and a Swiss bank. However, it will take two to six weeks before they can transfer funds to and from customers.

Bitspark, a bitcoin remittance payment company, also had to open bank accounts overseas to meet banking requirements, said founder George Harrap. He said dozens of local banks denied the bank an account without any explanation. Harrap opened an account several months later, but he chose to change his business model by opening accounts in Europe and accepting cash deposits through money transfer companies.

Hong Kong’s Reputation At Stake

Glucksmann and Harrap believe the banks’ actions are compromising Hong Kong’s reputation as a financial hub and the government’s efforts to make the company a fintech center. Glucksmann thinks the government should take a lesson from Japan, which in September recognized bitcoin exchanges.

Leo Weese, president of the Hong Kong Bitcoin Association, said its members’ top concern was getting a bank account, and losing their bank account was the top fear. Those who have bank accounts are trying to be cautious, Weese said, but being cautious raises red flags at banks.

Weese said the know-your-customer cost for each transaction for bitcoin companies was discouraging banks. Charles Mok, an information technology lawmaker, said the banking problem is not limited to cryptocurrency startups in Hong Kong. The same problem afflicts other fintech companies. Mok said the government cannot point to Hong Kong as a fintech hub without helping businesses understand they could face bank account hurdles.

Featured image from Shutterstock.