The Hong Kong Monetary Authority (HKMA) is urging major banks, such as HSBC and Standard Chartered, to accept cryptocurrency exchanges as clients in order to establish Hong Kong as the global center of the cryptocurrency industry. Despite recent regulatory crackdowns on the industry by U.S. authorities, this is the case.

According to the Financial Times, at a meeting held last month, the HKMA questioned British institutions and the Bank of China about their reluctance to take cryptocurrency exchanges as clients. In a letter dated April 27, regulators urged banks not to impose a "undue burden" on prospective customers, particularly those establishing offices in Hong Kong.

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While there is no explicit prohibition on cryptocurrency clients, traditional banks are reticent to engage with exchanges for fear of legal repercussions if these platforms are implicated in money laundering or other illegal activities.

Despite a number of high-profile setbacks, such as the recent demise of FTX, these events demonstrate the complexity of Hong Kong's efforts to solidify its position in the global crypto landscape. The opposition stems from traditional banking viewpoints, with many senior bank executives displaying reluctance.

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The USSEC has recently filed lawsuits against two of the world's largest cryptocurrency exchanges, Binance and Coinbase, alleging them of violating US securities laws. Johnny Ng, a prominent pro-Beijing legislator in Hong Kong, has invited crypto exchanges to establish operations in the city despite the city's continued commitment to the sector.

As a result, banks are navigating a difficult balancing act, supporting the nascent cryptocurrency sector while remaining cognizant of the evolving international regulatory landscape.

Supporting a government-backed initiative while ensuring compliance with stringent anti-money laundering and know-your-customer regulations has placed banks in a difficult position.

Jonathan Crompton, a Hong Kong-based counsel at the law firm RPC, emphasized the vocal expectations of the HKMA and the Securities and Futures Commission, describing the HKMA's posture as "unusual" in comparison to the more crypto-skeptic global regulators.

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Hong Kong is eager to reclaim its position as a crypto center despite the headwinds caused by the 2017 crypto repression in Beijing. The city is home to significant industry participants, such as the now-defunct FTX exchange and Crypto.com, and introduced a new licensing regime for crypto platforms earlier this month in an effort to attract more crypto companies.

Both HSBC and Standard Chartered, which are integral to Hong Kong as issuers of the city's currency, have expressed their commitment to the evolving policies and developments in Hong Kong's cryptocurrency landscape. The Chinese Central Bank declined to comment.