Hong Kong’s securities professionals urge regulators to ease crypto record-keeping, liability burdens

HKSFPA shared its grievances about certain aspects of the proposal in an advocacy paper published on Monday, saying that some laws could create operational constraints and legal exposure for market participants. 

Hong Kong’s Securities & Futures Professionals Association said it is mostly in support of the city’s CARF law, although it asked authorities to be flexible on record-keeping requirements. The association was responding to the amendments made to the Organisation for Economic Co-operation and Development’s Crypto Asset Reporting Framework (CARF). 

CARF, proposed in December 2024, is seeking to greenlight the exchange of crypto asset holders’ tax information beyond the Chinese special administration’s borders by 2028, according to the OECD.

HKSFPA bashes record-keeping rules for dissolved companies

According to the association’s responses, HKSFPA supports the proposed six-year record retention period, in line with the existing Inland Revenue Department and CRS standards. However, the group said it was concerned about the extension of record-keeping obligations for a dissolved entity.

“We generally agree with the six-year retention period to align with existing inland revenue and CRS standards, but we have concerns regarding the obligations placed on individuals post-dissolution.”

Per the association, forcing directors or principal officers to be responsible for recordkeeping after a company’s operations are officially shut down could expose them to indefinite liabilities and stonewall their compliance.

It recommends that the government cut off the access of former officers to the storage, funding, or any legal firm authorized to keep client data. Citing issues brought up by the PwC and the Financial Services Treasury Bureau, the group proposed appointing an independent third-party custodian, such as a liquidator or licensed corporate service provider, to take over record-keeping duties.

Calls for proportional registration requirements

When asked about the mandatory registration for RCASPs with any reporting nexus to Hong Kong, HKSFPA said it would help ensure fair competition and prevent compliant firms from being undercut by unregulated operators. 

It conceded that mandatory registration would help the Inland Revenue Department identify the full population of RCASPs operating in or connected to the city. Still, a one-size-fits-all law could be excessive for firms that have “nil returns.”

“We recommend a lite registration or a simplified annual declaration process for RCASPs that anticipate filing Nil Returns, to reduce administrative costs while still satisfying the IRD’s oversight requirements,” HKSFPA wrote.

The group also noted that many private investment entities fall into this category and could face unnecessary administrative layers under the current proposal. It suggested that entities registered under CARF or holding a business registration number should be able to activate CRS registration through a simple portal selection.

On punishing companies that break the law, HKSFPA agreed that the administrative penalty is the best alternative to criminal prosecution. This, per the business rights advocates, could help resolve non-compliance issues and reduce legal costs for regulators and the industry.

However, it cautioned against applying a “per account” penalty of “$1,000 per account/user,” which is similar to the United Kingdom’s rules. The association warned that this could result in disproportionate penalties, saying a single software issue could lead to fines even where there was no intent to evade taxes.

“A reasonable excuse defense can be clearly codified for cases where RFIs relied on valid self-certifications that later turned out to be false, provided the RFI performed standard due diligence,” the group said.

Electronic filing systems for CARF submissions encouraged

When questioned about the filing system crypto asset service providers should use for CARF, the association was positive on electronic filing but encouraged the government to move beyond manual uploads.

Some of its suggestions away from manual filings included Application Programming Interface and XML files, particularly for larger institutions with complex systems. Direct API connectivity would allow reporting processes to be automated, which would reduce filing errors and improve data consistency.

Manual uploads through an online portal, it said, reduce the efficiency of firms managing high transaction volumes. It said both options must be fully supported, with detailed XML specifications and testing environments made available at least a year before the system goes live.

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