CARF, the next step in Hong Kong's cryptocurrency asset regulation

Written by: FinTax

On December 9, 2025, the Hong Kong government announced through the Gazette that authorities are conducting public consultation 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 information with relevant partner tax jurisdictions starting in 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 established a local implementation timetable. This arrangement reflects Hong Kong’s balancing considerations between aligning with the international system and maintaining autonomous regulation to ensure market stability. Taking this public consultation as an opportunity, this article briefly reviews the CARF framework, introduces Hong Kong’s current tax information exchange system, traces the evolution of crypto-asset regulation, and analyzes the potential impacts of implementing CARF on various 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 standard for automatic exchange of tax-related financial information, promoted by the Organization for Economic Cooperation and Development (OECD). It aims to regulate cross-border tax information disclosure 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 it to the tax authorities of their jurisdiction, and ultimately facilitate automatic international information exchange between tax authorities. The mechanism of CARF is similar to the traditional financial sector’s CRS but focuses on crypto-asset activities such as buying, selling, exchanging, custody, and transfer, aiming to reduce the scope for taxpayers to conceal taxable income or assets in decentralized environments and enhance tax transparency of crypto-assets. As CARF is promoted globally, it is expected to help crypto-asset transactions achieve a level of tax information disclosure comparable to traditional finance, indicating a gradually clearer blueprint for crypto-asset tax transparency.

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

Hong Kong’s existing international tax information exchange system is primarily built on traditional financial sectors. Hong Kong is one of the jurisdictions that early and comprehensively aligned with OECD standards for tax transparency. As early as 2014, the Hong Kong government announced support for the OECD’s Automatic Exchange of Financial Account Information (AEOI) arrangement, and in 2016 amended the Inland Revenue Ordinance to establish a legal framework. Under the CRS mechanism, local financial institutions (banks, custodians, investment entities, etc.) with reporting obligations must identify the tax residency of account holders and controlling persons, and report information on qualifying offshore tax residents to the Hong Kong Inland Revenue Department (IRD), which then exchanges information automatically with partner jurisdictions. In terms of implementation, Hong Kong began its first automatic exchanges of tax-related financial account information with initial partner jurisdictions (Japan, UK, etc.) starting in 2018. Subsequently, the number of jurisdictions with which Hong Kong exchanges tax information under the IRD’s Schedule increased from 75 to over 120 by 2020.

Beyond CRS, Hong Kong actively engages in other forms of international cooperation on tax information exchange. In November 2014, Hong Kong signed a intergovernmental agreement (IGA) with the United States to implement FATCA (Foreign Account Tax Compliance Act). Under this agreement and the associated FFI agreement, from 2015 onward, qualifying Hong Kong financial institutions must identify U.S. accounts and, with account holder consent, report account balances, interest, dividends, and related data to the IRS annually. Additionally, Hong Kong joined the Mutual Administrative Assistance in Tax Matters (MAC) and signed the Multilateral Competent Authority Agreement (CRS-MCAA), establishing a framework for CRS financial account information exchange with multiple jurisdictions.

Hong Kong has developed a mature technical and institutional system for traditional financial account information exchange. In this context, the introduction of CARF in Hong Kong is an extension and transformation of the existing CRS/FATCA information exchange model into the crypto-asset domain. This article will further explore the development of crypto-asset regulation in Hong Kong and its interaction with the traditional financial tax ecosystem.

3. Evolution of Hong Kong’s Crypto-Asset Regulatory Policies

Hong Kong’s crypto-asset regulation has been continuously refined to balance market innovation and risk control.

Since 2018, the Hong Kong Securities and Futures Commission (SFC) has issued a series of regulatory statements and guidelines, gradually forming a virtual asset regulatory framework. In 2019, it launched a “sandbox” regime for virtual asset trading platforms targeting professional investors, and in 2023 amended 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 investor protection and risk management mechanisms from traditional finance into the virtual asset ecosystem. Overall, this phase’s regulatory focus remains on risk control of crypto activities, without yet covering broader trading scenarios.

As the market expanded and investor participation increased, Hong Kong revised the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) in 2022, and from June 2023, officially implemented a licensing regime for Virtual Asset Service Providers (VASPs), regulated by the Securities and Futures Commission (SFC). This regime requires all licensed entities operating in Hong Kong that facilitate virtual asset trading or custody, such as exchanges, to obtain a license. Licensed platforms must comply with requirements similar to securities services, including client asset segregation, capital adequacy, platform security, compliance, and auditing. However, this regime only covers electronic platforms and client-facing activities, excluding OTC scenarios like physical currency shops and over-the-counter trading.

To fill regulatory gaps, between February and April 2024, the Hong Kong Financial Services and the Treasury Bureau (FSTB) 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 scope includes spot exchanges between virtual assets and fiat currencies, and related fiat remittance services (e.g., BTC, USDT, HKD/USD exchanges). In the second legislative proposal released in June 2025, authorities further established a unified licensing and regulatory framework for VASPs, requiring all entities providing virtual asset trading or custody services in Hong Kong to apply for licenses or register, with banks and stored-value payment providers involved in virtual asset activities regulated by the Hong Kong Monetary Authority (HKMA). For stablecoin issuers, if they only issue or redeem in the primary market with HKMA approval, they may be exempted. In February 2025, the SFC also published the “A-S-P-I-Re” regulatory roadmap, outlining five pillars—Access, Assurance, Products, Infrastructure, and Connectivity—to build a more robust virtual asset regulatory ecosystem.

Hong Kong is actively transitioning from pilot projects to full-chain coverage of virtual asset regulation, with the regulatory framework becoming more complete.

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

Based on understanding the principles of the CARF framework and the trends in Hong Kong’s crypto regulation, this section discusses the possible impacts after CARF’s implementation from the perspectives of crypto exchanges, individual investors, custodians, and traditional financial intermediaries.

4.1 Crypto Asset Trading Platforms

If CARF is legislated in Hong Kong, licensed crypto asset trading platforms and other qualifying crypto service providers may be recognized as RCASPs. These platforms will be required to conduct tax due diligence on clients, verify tax residency, and collect and report account and transaction data according to CARF standards. Practically, platforms might need to update KYC procedures, add data fields, and upgrade internal systems to generate compliant reports. Fulfilling reporting obligations could increase compliance costs and operational burdens but may also enhance client verification and internal controls, improving the trading environment.

4.2 Individual Investors

Individual investors are likely to be the most directly affected after CARF’s implementation. Specifically, if investors are Hong Kong tax residents, their crypto transactions—buying, selling, exchanging, or paying—conducted via local platforms will no longer only be recorded internally but may be automatically exchanged to other jurisdictions via the Hong Kong IRD. If investors are non-Hong Kong tax residents, their accounts and transaction data through Hong Kong RCASPs could similarly be exchanged with their home country tax authorities. In other words, the decentralized and anonymous features of crypto transactions will not allow investors to evade taxes easily.

4.3 Crypto Custodians

The impact on crypto custodians depends on their scope of activities. Pure custody providers (e.g., cold wallet safekeeping, custody reports) that do not directly facilitate trading may be considered similar to “custodian financial institutions,” with their reporting mainly relying on existing channels like CRS. Custodians offering trading or exchange services (e.g., integrated custody and trading platforms) could fall under the RCASP scope, requiring them to fulfill CARF reporting obligations and establish client due diligence and data reporting mechanisms similar to those of trading platforms.

4.4 Banks and Traditional Financial Intermediaries

While CARF primarily regulates RCASPs providing crypto services, traditional financial institutions may also be affected. For example, banks may need to more systematically understand whether clients are transferring large sums via crypto transactions when implementing AML or KYC procedures. Financial intermediaries offering wealth management or family office services may also need to incorporate crypto assets into their overall tax planning considerations.

5. Response Strategies: From Observation to Proactive Compliance

As previously discussed, CARF’s implementation could broadly impact market participants. Possible response strategies include:

For crypto trading platforms: assess whether their activities fall within the RCASP scope. If applicable, they should proactively deploy and improve customer due diligence processes, update client forms, and establish systematic data collection and reporting systems. Practically, platforms can refer to FATCA/CRS compliance models, acquire or develop reporting tools compliant with CARF XML schemas, and train staff accordingly. They should also closely monitor IRD’s detailed implementation standards and maintain communication with regulators during the legislative consultation phase to adjust processes proactively.

For individual investors: systematically organize crypto transaction records, retain all trade logs, cost documents, and expense receipts to ensure complete and consistent information for tax filings. For those holding crypto accounts in multiple jurisdictions, plan ahead for cross-border reporting obligations to reduce compliance risks due to mismatched reporting systems. Prioritize trading on licensed or regulated platforms to ensure data quality and reporting stability. Overall, investors should enhance their understanding of tax residency, reporting obligations, and information exchange rules, seeking professional tax advice when necessary.

For crypto custodians: if involved in trading, exchanging, or matching activities, establish channels for storing and reporting crypto transaction data early. Even if only providing custody services, they should evaluate their reporting obligations under CARF and CRS, maintain clear business line distinctions, and improve internal controls.

6. Conclusion

In summary, Hong Kong’s introduction of CARF alongside the revision of CRS represents a regulatory upgrade aligned with international tax transparency trends and a natural extension amid the deepening regulation of crypto assets. Building on existing CRS, FATCA, and licensing frameworks, Hong Kong is technically and institutionally capable of implementing CARF. Its implementation is expected to further enhance the tax transparency of Hong Kong’s crypto market, affecting trading platforms, custodians, individual investors, and traditional financial intermediaries. As CARF advances, various entities should prepare accordingly based on their roles. With legislative and technical details becoming clearer, Hong Kong’s virtual asset regulation system will enter a more systematic and robust development phase.