Hong Kong’s proposed Crypto-Asset Reporting Framework (CARF), aligned with the Common Reporting Standard (CRS), is prompting sharp industry pushback because firms say its structure could deter business and fragment the market. Regulators target initial cross-border information exchanges by September 2028.
Industry associations such as the Hong Kong Securities and Futures Professionals Association have flagged the draft’s penalty architecture as especially worrying. While intentional misconduct carries a maximum fine of HKD 100,000 and up to three years in prison, other breaches lack clear caps.
Firms warn that a single administrative lapse or a software glitch could trigger substantial liabilities, creating a compliance posture driven by regulatory fear rather than proportional risk management.
Beyond legal exposure, CARF implementation demands heavy investment in systems and staff to collect, validate and transmit granular transaction and user data for cross-border tax exchanges. Smaller providers expect those compliance costs to divert capital from product development and market-making, reducing operational competitiveness relative to jurisdictions with more flexible regimes.
The concern is not over transparency per se, but over how the rules are drafted: uncapped penalties for many infractions, personal liability for directors and officers, and broad data collection requirements that collide with users’ privacy preferences.
Market effects, privacy tension and capital flight risks
Crypto businesses describe a tension between CARF’s transparency goals and a segment of the market that values privacy. That friction could push certain users and services to less transparent venues, counteracting the framework’s intent to bring assets into the regulated mainstream.
Industry voices warn these factors could prompt a “whale exodus”: high-net-worth individuals, institutional investors and service providers may relocate to jurisdictions perceived as less onerous. That would reduce liquidity, deter new entrants and blunt Hong Kong’s ability to attract talent and capital for its digital-asset ambitions.
Policymakers face a trade-off. CARF aims to fulfill international tax-cooperation commitments, but the current domestic translation, if left unchanged, risks an unfavorable cost-benefit balance for many market participants. The industry is advocating clearer, capped penalties, narrowly tailored data obligations and compliance flexibility to avoid unintended economic consequences.
Investors and observers are now turning their attention to the September 2028 timetable for initial information exchanges, which will be the most consequential test of this policy path. How regulators refine liability rules and reporting scope before that date will shape whether Hong Kong preserves its competitive position or sees activity migrate elsewhere.
