Hong Kong is expected to implement the Crypto-Asset Reporting Framework (CARF) and automatic exchange of tax-related information starting from 2028. This article analyzes the contents of CARF, Hong Kong’s tax information exchange system, the evolution of crypto regulation, and the impact on market participants such as trading platforms, investors, and custodians.
(Background brief: Hong Kong Securities and Futures Commission releases “Double Circulars,” shifting regulation from gatekeeping to enabling)
(Additional background: Lawyers warn that China’s RWA industry only has two options: go overseas or completely give up)

Table of Contents

• 1. Overview of the CARF Framework
• 2. Information Exchange in Hong Kong’s Traditional Financial Sector
• 3. Evolution of Crypto Asset Regulation in Hong Kong
• 4. Potential Impact of CARF Implementation on Hong Kong’s Crypto Market
  • 4.1 Crypto Asset Trading Platforms
  • 4.2 Individual Investors
  • 4.3 Crypto Asset Custody Institutions
  • 4.4 Banks and Traditional Financial Intermediaries
• 5. Response Strategies: From Observation to Proactive Compliance
• 6. Conclusion

On December 9th, Hong Kong announced through the Government Gazette that authorities are conducting public consultations on amendments related to the implementation of the Crypto-Asset Reporting Framework (CARF) and the Common Reporting Standard (CRS). The goal is to automatically exchange crypto asset transaction tax-related information with relevant partner tax jurisdictions from 2028, and to implement the revised CRS rules from 2029.

Although Hong Kong has not yet signed the multilateral competent authority agreement (MCAA) for CARF, it has actively determined the local implementation timetable. This arrangement reflects Hong Kong’s consideration of balancing alignment with the international system and maintaining autonomous regulation to ensure market stability.

Taking this public consultation as an opportunity, this article briefly reviews the contents of the CARF framework, introduces Hong Kong’s current tax information exchange system, summarizes the evolution of crypto asset regulation, and analyzes the potential impacts of implementing CARF on different market participants, aiming to provide industry practitioners and investors with useful compliance references.

1. Overview of the CARF Framework

The Crypto-Asset Reporting Framework (CARF) is an international tax information automatic exchange standard promoted by the Organisation for Economic Co-operation and Development (OECD). It is designed to regulate cross-border tax information disclosures related to crypto assets.

CARF stipulates that reporting obligation crypto-asset service providers (RCASPs) must collect tax-related information of clients and relevant transactions, report this data to the tax authority in their jurisdiction, which will then engage in automatic international information exchange with other tax authorities.

The mechanism of CARF is similar to the traditional financial sector’s CRS, but CARF focuses on behaviors such as buying, selling, exchanging, custody, and transfer of crypto assets. Its aim is to narrow the scope for taxpayers to conceal taxable income or assets in decentralized environments and to enhance the tax transparency of crypto assets. As CARF is promoted worldwide, it is expected to help crypto asset transactions reach a level of tax information disclosure comparable to traditional financial sectors, indicating that the blueprint for crypto asset tax transparency is gradually becoming clearer.

2. Information Exchange in Hong Kong’s Traditional Financial Sector

Hong Kong’s existing international tax information exchange system is mainly built on the traditional financial sector. Hong Kong is one of the early and comprehensive jurisdictions to align with OECD standards on tax transparency. As early as 2014, the Hong Kong government announced support for OECD’s Automatic Exchange of Financial Account Information (AEOI) arrangements, and in 2016 amended the Inland Revenue Ordinance to establish a supporting legal framework.

Under the CRS mechanism, locally obligated financial institutions (banks, custodians, investment entities, etc.) are required to identify the tax residency of account holders and controlling persons, and report information on qualifying foreign tax residents to the Hong Kong Inland Revenue Department (IRD). The IRD then exchanges this information automatically with partner jurisdictions. Hong Kong’s implementation of CRS began in 2018, with initial exchanges with jurisdictions like Japan and the UK. Since then, the number of jurisdictions with which Hong Kong exchanges tax information under the “reporting tax jurisdiction” list has expanded from 75 to over 120 by 2020.

Beyond CRS, Hong Kong actively engages in other forms of international tax cooperation. In November 2014, Hong Kong signed the Intergovernmental Agreement (IGA) for FATCA with the United States. Under this agreement and the associated Foreign Financial Institution Agreement (FFI), Hong Kong financial institutions are required from 2015 onward to identify U.S. accounts and report relevant account balances, interest, dividends, and other information annually to the IRS, with account holder consent. Hong Kong also joined the Mutual Administrative Assistance in Tax Matters (MAC) Convention and signed the multilateral CRS MCAA, establishing a framework for CRS financial account information exchange with multiple partners.

In terms of traditional financial account information exchange, Hong Kong has built a relatively mature technological and institutional system. The introduction of CARF in Hong Kong is an extension and transformation of the existing CRS/FATCA information exchange models into the crypto asset domain. Therefore, this article will continue to explore the development of crypto asset regulation and its interaction with Hong Kong’s traditional financial tax ecosystem.

3. Evolution of Crypto Asset Regulation in Hong Kong

Regarding crypto asset regulation, Hong Kong continuously improves its regulatory framework to balance market innovation and risk prevention.

Since 2018, the Hong Kong Securities and Futures Commission (SFC) has issued various statements and guidelines, gradually forming a virtual asset regulatory framework. In 2019, it launched a “sandbox” regulation for virtual asset trading platforms targeting professional investors, and in 2023 revised the Anti-Money Laundering Ordinance (AMLO) to establish a licensing regime for virtual asset trading platforms. In 2024, Hong Kong approved the issuance of Asia’s first spot virtual asset ETFs and other institutional products, aiming to bring traditional market investor protections into the virtual asset ecosystem. The focus during this phase remains on risk control of crypto activities, without comprehensive coverage of broader trading scenarios.

As the market expands and investor participation increases, Hong Kong revised the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) in 2022, and from June 2023, officially implemented a Virtual Asset Service Provider (VASP) licensing system regulated by the Securities and Futures Commission (SFC). This system requires all entities operating crypto exchanges or custody services in Hong Kong to obtain a license from the SFC. Licensed platforms must comply with requirements similar to securities services, including client asset segregation, capital adequacy, platform security, compliance, and audit. However, this system only covers electronic platforms and activities involving client assets; OTC scenarios like physical coin shops or face-to-face trading are not included.

To fill regulatory gaps, from February to April 2024, the Hong Kong Financial Secretary and Treasury launched consultations on the first round of licensing for virtual asset over-the-counter (OTC) trading services, aiming to regulate physical OTC trading for the first time. The main contents include spot exchanges between virtual assets and fiat currencies, and related fiat remittance services (e.g., BTC, USDT, HKD/USD exchanges). In June 2025, a second legislative proposal was released to create a unified licensing and regulation framework for virtual asset service providers, requiring all providers of crypto trading or custody services in Hong Kong to apply for licenses or register with the SFC; banks and stored value facilities involved in crypto activities are regulated by the Hong Kong Monetary Authority (HKMA).

For stablecoin issuers, if they only issue or redeem in primary markets with approval from HKMA, they can enjoy exemptions. In February 2025, the SFC also published the “A-S-P-I-Re” regulation roadmap, outlining five pillars—Access, Assurance, Products, Infrastructure, and Connectivity—to build a more robust crypto regulation ecosystem.

Hong Kong is advancing virtual asset regulation from pilot projects toward full-chain coverage, with a more complete regulatory outline.

4. Potential Impact of CARF Implementation on Hong Kong’s Crypto Market

Based on the understanding of CARF principles, Hong Kong’s crypto regulation trends, this article discusses the possible impacts on four market participants: crypto trading platforms, individual investors, custody institutions, and traditional financial intermediaries.

4.1 Crypto Asset Trading Platforms

If CARF is implemented legislatively in Hong Kong, licensed crypto trading platforms and other qualifying crypto service providers may be recognized as RCASPs. These platforms will be required to perform tax due diligence on clients, verify tax residency, and collect and report account and transaction information according to CARF standards.

Practically, platforms may need to update KYC procedures, add data fields, upgrade internal systems to generate compliant reports, and develop or procure tools that support CARF XML schemas. They will also need to train staff accordingly. Complying with reporting obligations may increase compliance costs and operational burden but can also enhance internal customer vetting and control capabilities, ultimately optimizing the trading environment.

4.2 Individual Investors

Individual investors are likely to be the most directly affected group after CARF’s implementation. Specifically, if an investor is a Hong Kong tax resident, their crypto transactions—buying, swapping, or paying—conducted via local platforms will no longer only be recorded internally but may be automatically exchanged by the Hong Kong IRD with foreign tax authorities.

If the investor is not a Hong Kong tax resident, their accounts and transaction information through Hong Kong RCASPs may also be exchanged with their home country tax authorities. In other words, it will be difficult for investors to evade taxation by relying on decentralization and anonymity features of crypto trading.

4.3 Crypto Asset Custody Institutions

The impact of CARF on custody institutions depends on their scope of activities. Pure custody providers (e.g., cold storage, custody reports) that do not directly facilitate buying and selling may be viewed as similar to “custodial financial institutions,” with information reporting primarily relying on existing channels like CRS. If custody providers also offer trading or exchange services (e.g., integrated custody and trading platforms), they may fall under RCASP scope, with reporting obligations similar to crypto trading platforms, requiring the establishment of client tax due diligence and data reporting mechanisms.

4.4 Banks and Traditional Financial Intermediaries

Although CARF mainly directly regulates RCASPs rather than banks and traditional intermediaries, their compliance ecosystems may be affected. For example, banks implementing AML and KYC procedures might need more systematic understanding of whether clients transfer large sums via crypto transactions. Additionally, wealth management and family office services may need to incorporate crypto assets into overall tax planning.

5. Response Strategies: From Observation to Proactive Compliance

As previously discussed, the implementation of CARF can have extensive impacts on market entities. This article suggests potential response strategies:

For crypto trading platforms, it’s prudent to assess whether their operations fall under RCASP scope. If so, they should proactively deploy and refine customer due diligence processes, update customer information forms, and establish systematic data collection and reporting mechanisms. Operationally, platforms can refer to FATCA/CRS compliance models, procure or develop CARF XML schema-compliant reporting tools, and train staff accordingly. Maintaining communication with the Hong Kong IRD during legislative consultations to understand detailed implementation standards and adjust processes in advance is also recommended.

Individual investors should systematically organize trading records, retain transaction logs, cost documents, and expense receipts to ensure complete and consistent information during tax filings. For those holding crypto accounts in multiple jurisdictions, early planning for cross-border information exchange obligations can reduce compliance risks. Prioritizing licensed or regulated platforms can also ensure data quality and reporting stability. Overall, investors should enhance awareness of tax residency, reporting obligations, and information exchange rules, and seek professional tax advice when necessary.

Custody institutions involved in crypto asset trading or exchange should establish early data retention and reporting channels. Even if only offering custody services, they should evaluate their reporting scope under CARF and existing CRS systems, and maintain clear business boundaries and internal controls.

6. Conclusion

In summary, Hong Kong’s adoption of CARF and the concurrent revision of CRS are not only responses to international tax transparency trends but also natural extensions amid the gradual deepening of crypto asset regulation. Based on existing CRS and FATCA information exchange systems, as well as the crypto licensing framework, Hong Kong is technically and institutionally prepared to implement CARF.

The implementation of CARF is expected to further enhance the tax transparency of Hong Kong’s crypto market, impacting trading platforms, custody institutions, individual investors, and traditional financial intermediaries. In the process of advancing CARF, different entities should prepare according to their roles. As legislation and technical details become clearer, Hong Kong’s virtual asset regulation system will evolve into a more systematic and robust phase.

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