Hong Kong Industry Responds to Crypto Reporting and CRS Amendments

TLDR

• The industry supports collecting data from both reportable and non-reportable clients to reduce future compliance and monitoring burdens.
• Firms seek clear legal protection under Hong Kong privacy laws when collecting data for potential future reporting obligations.
• Industry groups oppose personal liability for directors after entity closure and recommend licensed custodians handle record retention.
• Administrative penalties are supported, but firms request caps for unintentional errors and API-based reporting to reduce operational risk.
• The industry prefers mandatory reporting under both CARF and CRS to simplify compliance and avoid under-reporting risks.

Hong Kong’s crypto sector has provided a feedback on the proposed Crypto-Asset Reporting Framework (CARF) and changes to the Common Reporting Standard (CRS). The submission covers topics including data collection, mandatory registration, record-keeping obligations, and penalties.

Data Collection Backed with Privacy Safeguards

Hong Kong  favors a wider approach to data collection at onboarding for both reportable and non-reportable persons. This avoids repeated client outreach if jurisdictions change later, which introduces risk and burden. However, the sector requests legal clarity ensuring such collection complies with Hong Kong’s Personal Data (Privacy) Ordinance.

Record retention for six years aligns with existing tax rules but post-dissolution liabilities raised concerns. Holding directors liable for preserving client data after a company closes presents storage and legal risks. The industry recommends designating licensed custodians to assume this responsibility instead of individuals.

Mandatory registration for all reporting crypto service providers (RCASPs) is supported to ensure fairness and oversight. However, simplified registration is requested for “Nil Reporters,” who have no cross-border reporting requirements. A lighter process can reduce unnecessary administrative costs while maintaining transparency.

Penalties, Filing, and Dual Reporting Discussed

The proposal to introduce administrative penalties is well-received as an alternative to legal prosecution for compliance failures. However, applying per-account penalties without a cap for unintentional errors was challenged. The industry seeks a reasonable penalty cap for technical issues that do not involve fraud.

For filing mechanisms, the sector supports electronic reporting via the CARF portal but requests direct API connectivity. Manual uploads for high-volume use cases are prone to failure, and API support would enable automation. A grace period in the first two years is also requested to address reporting complexity.

Large institutions will likely use internal or third-party systems, while smaller entities may rely on tools from the Inland Revenue Department. Therefore, both options must be stable and well-documented. Early release of XML schemas and a testing sandbox is critical for readiness.

On dual reporting under CARF and CRS, the default approach is preferred over optional exclusions. This reduces the risk of under-reporting and avoids costly transaction-level reconciliation. A global alignment with the default approach also benefits firms with regional operations.

CRS Adjustments and Authentication Flexibility Proposed

Mandatory CRS registration is accepted, but the industry urges streamlining the process for entities already registered under CARF. Linking existing business registration with CRS activation would reduce duplication. Concerns were raised about the difficulty of managing multiple digital certificates for each fund structure.

For record-keeping purposes, the industry reiterated its position, as stated in CARF, that liability after entity dissolution should shift to a service provider. This would reduce the burden on individual directors of dissolved entities. Compliance can still be maintained without personal liability.

The sector also supports administrative penalties under CRS if paired with a “graduated” system based on severity. A soft enforcement period with warnings for minor first-time issues is requested. The ability to defend actions taken in good faith using valid self-certifications should be codified.

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