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Hong Kong Warns Investors Of Bitcoin Risks

by Mary Swire, LawAndtax-News.com, Hong Kong
18 March, 2014

Hong Kong's Financial Services and the Treasury Bureau has warned investors that caution should be exercised when trading in virtual currencies, such as Bitcoin. The Bureau is responsible for providing advice to the Government and regulators on financial sector policies and oversight.

It pointed out that since mid-2013 the Government and financial regulators have been reminding the public of risks relating to the highly speculative nature of investing in virtual commodities, which are not regarded as legal tender in Hong Kong. Their prices are susceptible to significant fluctuation due to speculation, such that – unbacked by any physical items, issuers, or the real economy – they can cause significant monetary losses to consumers, the Bureau warned.

Consumers may not be able to obtain a refund of their monies should a virtual commodity collapse or those who deal in it cease to operate. Given that such virtual commodities themselves are not securities, consumers buying them will not have the safeguards that investors in securities enjoy under Hong Kong's Securities and Futures Ordinance, it continued.

The anonymous nature of virtual commodities, it is added, also poses potential money laundering or terrorist financing risks. Financial institutions, virtual commodity dealers or operators, and individuals are being reminded of their statutory duty to report suspicious transactions to the Joint Financial Intelligence Unit.

Financial institutions have also been reminded to exercise caution in assessing relevant money laundering or terrorist financing risks when establishing or maintaining business relationships with customers who are operators of any schemes or businesses relating to virtual commodities. Any virtual commodity operators whose transactions involve money changing or remittance services are required to apply to the Commissioner of Customs and Excise for a "money service operator" license.

Furthermore, consumers or businesses dealing in virtual commodities are prone to cybercrime risks, the Bureau continued. About 20 complaints on investment scams, online deception, online blackmail and unauthorized access to computers, in relation to the trading or storage of virtual commodities, have been received by Hong Kong's police in the past 12 months.

While Hong Kong does not regulate virtual commodities specifically in terms of their safety or soundness, it was stressed that existing laws provide sanctions against money laundering, terrorist financing, fraud and cybercrime.

The Government and financial regulators are to closely monitor developments, including the use of virtual commodities in Hong Kong and the evolving regulatory consensus at international level. They also plan to monitor regulatory and enforcement actions in comparable jurisdictions, to consider whether further action is necessary to protect the public.

A comprehensive report in our Intelligence Report series examining the new possibilities that offshore e-commerce open up for business, and analysing the offshore jurisdictions that have led the way in offering professional e-commerce regimes for international business, with a particular focus on e-gaming, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report6.asp

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