Regulatory change is in the air in China as mainland lawmakers consider significant revisions to the country’s anti-money laundering (AML) law, focusing on the risks emerging from the rapid growth of fintech and digital assets. At the same time, Hong Kong is taking steps to tighten its regulatory grip on digital asset trading, with potential new licensing rules for over-the-counter (OTC) digital asset services. These reforms, aimed at mitigating evolving financial crime risks, could reshape how both jurisdictions approach AML and digital asset regulation.
Mainland China’s AML Law Revision: A Response to New Tech Challenges
On September 9, Wang Xiang, spokesperson for China’s Legislative Affairs Commission, announced proposed revisions to the country’s AML law. The revisions aim to address challenges posed by the fast-evolving fintech landscape. As new technologies and business models emerge, they have created novel pathways for financial crime, making it harder for authorities to detect and investigate money laundering activities.
Wang highlighted the complexities brought by these developments, noting that the “rapid development of new technologies and business forms has increased the difficulty of detecting and investigating money-laundering activities.” The country is under increasing pressure to respond effectively, as evidenced by the prosecution of 1,391 individuals on money laundering charges in the first half of 2024.
To combat this growing threat, China’s revised AML law would include provisions enabling the central bank to issue specific guidelines in collaboration with other authorities to monitor new money-laundering risks. Financial institutions, in turn, would be tasked with assessing the risks posed by emerging business models and taking appropriate countermeasures.
Additionally, the law would refine the definition of AML by explicitly listing seven predicate offenses, including drug trafficking, human trafficking, corruption, fraud, and terrorist financing. This clearer delineation would provide a stronger legal framework for addressing the diverse array of crimes that often underpin money laundering schemes.
Virtual Assets and AML: China’s Legal Stance
China’s crackdown on money laundering extends to the realm of digital assets, which the country does not recognize as legal tender. Despite their prohibition in the market, virtual assets have become a new frontier for illicit activities. In a significant ruling last month, China’s Supreme People’s Court identified virtual assets as potential tools for laundering money and evading taxes.
The ruling explained that transactions involving virtual assets, such as the conversion of proceeds from crime, could be used to conceal the origins and nature of illicit funds. The court also laid out strict penalties for severe cases of money laundering, where transactions exceed 5 million yuan ($704,735) or result in losses of over 2.5 million yuan ($352,368). Such instances would be considered “serious circumstances,” resulting in harsher punishments.
The revised AML law is expected to undergo a second round of review this week during the session of the Standing Committee of the National People’s Congress (NPC), bringing China a step closer to strengthening its legal tools against financial crime.
Hong Kong’s Regulatory Developments: A Focus on OTC Digital Assets
While China grapples with fintech-driven money laundering risks, Hong Kong—the only Chinese territory where digital assets are legal—is exploring its own regulatory updates. Hong Kong’s Securities and Futures Commission (SFC) is considering a new licensing regime for digital asset OTC services, a move that could reshape how investors buy and sell digital assets in the region.
OTC digital asset services allow investors to trade without relying on public exchanges, offering more privacy but also more risks. To ensure robust oversight, the SFC has sought input from industry stakeholders on whether these services should be subject to a new licensing regime. This proposal comes as the SFC works alongside Hong Kong’s Customs and Excise Department (C&ED) to supervise digital asset OTC trading.
A report by the South China Morning Post (SCMP) revealed that these new licensing regulations, initially the sole responsibility of the C&ED, were proposed in February and are now under joint discussion with the SFC. Moreover, the SFC has been consulting industry participants on a separate licensing framework for digital asset custodians, reflecting the increasing scrutiny of the territory’s growing digital asset sector.
The SFC’s proactive approach to digital asset regulation aligns with its commitment to fostering a “sustainable and responsible” virtual asset industry. A spokesperson for the SFC noted that the commission collaborates with the government and other regulators to develop a “robust, clear, and consistent regulatory environment” in Hong Kong.
Fraud Prevention and Regulatory Vigilance in Hong Kong’s Digital Asset Market
Since January 2020, the SFC has maintained an “Alert List” to protect investors from unlicensed entities targeting Hong Kong residents. In recent months, the list has expanded to include several suspicious digital asset platforms, reflecting the growing risk of fraud in the sector. In August, ICE Global Professional Station—a trading platform—was added to the list, following seven other digital asset exchanges flagged in July for potential fraudulent activity. This brought the total number of listed unlicensed exchanges to 42.
These developments underscore the importance of the proposed OTC licensing regime, as well as the SFC’s ongoing efforts to protect investors from fraudulent operators in the digital asset space.
Conclusion: A New Era of AML and Digital Asset Regulation
As China revises its AML law to tackle the challenges posed by fintech and digital assets, and Hong Kong strengthens its regulatory oversight of digital asset services, both jurisdictions are positioning themselves to better combat the evolving threats of financial crime. These reforms reflect a broader global trend of governments and regulators adapting to the rapid pace of technological change, ensuring that financial crime controls remain robust in an increasingly digital world.
China’s revised AML law and Hong Kong’s new digital asset regulations signal a heightened focus on transparency, accountability, and the prevention of illicit activities. For businesses and investors operating in these markets, staying informed about these regulatory changes will be essential for maintaining compliance and navigating the evolving financial landscape.
