CARF: The Next Phase of Hong Kong’s Crypto Asset Regulation

On December 9, 2025, the Hong Kong SAR Government announced through its official gazette that it has launched a public consultation on implementing the Crypto-Asset Reporting Framework (CARF) and amending the Common Reporting Standard (CRS). The initiative aims to begin automatic exchanges of tax-related information on crypto-asset transactions with partner tax jurisdictions by 2028 and to enforce the revised CRS rules starting in 2029. Although Hong Kong has not yet signed the CARF Multilateral Competent Authority Agreement (MCAA), it has proactively set a local implementation schedule. This reflects Hong Kong’s approach to balancing international alignment, regulatory autonomy, and market stability. Using this public consultation as a starting point, this article provides a concise review of the CARF framework, outlines Hong Kong’s current tax information exchange system, traces the evolution of crypto-asset regulation, and analyzes the potential impact of CARF implementation on different market participants in Hong Kong. The goal is to offer practical compliance insights for industry professionals and investors.

1. Overview of the CARF Framework

The Crypto-Asset Reporting Framework (CARF) is an international standard for the automatic exchange of tax information on crypto-assets, developed by the Organization for Economic Cooperation and Development (OECD). CARF sets requirements for cross-border tax information disclosure involving crypto-assets. Under CARF, Reporting Crypto-Asset Service Providers (RCASPs) must collect tax-relevant information about clients and related transactions, report it to their local tax authorities, and enable automatic international information exchange between tax authorities. While CARF operates similarly to the CRS in traditional finance, it specifically targets the buying, selling, exchange, custody, and transfer of crypto-assets. The framework is designed to reduce the ability of taxpayers to conceal taxable income or assets in decentralized environments and to improve tax transparency for crypto-assets. As CARF is adopted globally, it is expected to bring crypto-asset transaction disclosures up to the standards of traditional finance, clarifying the path toward tax transparency for digital assets.

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

Hong Kong’s current international tax information exchange system is primarily built around the traditional financial sector. Hong Kong was an early and comprehensive adopter of the OECD’s tax transparency standards. As early as 2014, the government committed to the OECD’s Automatic Exchange of Financial Account Information (AEOI) and amended the Inland Revenue Ordinance in 2016 to create a supporting legal framework. Under the CRS, local financial institutions with reporting obligations—including banks, custodians, and investment entities—must identify the tax residency of account holders and their controlling persons, report qualifying non-resident accounts to the Hong Kong Inland Revenue Department (IRD), and enable automatic information exchange with partner jurisdictions. In practice, Hong Kong began its first automatic exchange of financial account tax data with initial partner jurisdictions (such as Japan and the UK) in 2018. Since then, the number of “reportable jurisdictions” in the Inland Revenue Ordinance schedules has expanded from 75 in 2018 to over 120 by 2020.

In addition to the CRS, Hong Kong has actively engaged in other forms of international tax information exchange. In November 2014, Hong Kong and the United States signed the Intergovernmental Agreement to implement the Foreign Account Tax Compliance Act (FATCA IGA). Under this agreement and the Foreign Financial Institution (FFI) Agreement, since 2015, eligible Hong Kong financial institutions must identify their U.S. accounts and, with account holder consent, report account balances, interest, dividends, and other relevant data annually to the U.S. Internal Revenue Service (IRS). By joining the Convention on Mutual Administrative Assistance in Tax Matters (MAC) and signing the CRS Multilateral Competent Authority Agreement (CRS-MCAA), Hong Kong established a framework for multilateral CRS financial account information exchange with partner jurisdictions.

Hong Kong has built a mature technical and institutional foundation for traditional financial account information exchange. Against this backdrop, the introduction of CARF represents an extension and adaptation of the existing CRS/FATCA information exchange model into the crypto-asset sector. This article will further explore the evolution of crypto-asset regulation in Hong Kong and its interaction with the tax ecosystem of the traditional financial industry.

3. Evolution of Crypto-Asset Regulatory Policies in Hong Kong

Hong Kong has continued to enhance its regulatory framework for crypto-assets, aiming to balance market innovation and risk management.

Since 2018, the Securities and Futures Commission (SFC) has issued regulatory statements and guidelines to gradually establish a supervisory framework for virtual assets. In 2019, it introduced a “sandbox” regime for virtual asset trading platforms serving professional investors, and in 2023, it amended the Anti-Money Laundering Ordinance (AMLO) to formally establish a statutory licensing regime for virtual asset trading platforms. In 2024, Hong Kong approved Asia’s first spot virtual asset ETFs and other institutional-grade products, aiming to bring investor protection and risk management from traditional finance into the virtual asset ecosystem. Overall, this phase of regulation has focused on risk control in crypto-asset activities and has not yet fully covered the broader range of trading scenarios.

As the market has grown and investor participation has increased, Hong Kong amended the AMLO in 2022 and, starting in June 2023, formally implemented a licensing regime for Virtual Asset Service Providers (VASPs). The SFC is responsible for supervising licensed entities engaged in Virtual Asset Trading Platform (VATP) business. This regime requires all platforms operating in Hong Kong as intermediaries for virtual asset transactions—such as custodial services, market operation, or asset custody—to obtain an SFC license. Licensed platforms must comply with requirements similar to those for securities services, including client asset segregation, capital adequacy, platform security, compliance, and audit. However, the regime currently covers only electronic platforms and activities involving client assets, excluding physical coin shops and over-the-counter (OTC) scenarios.

To address regulatory gaps, from February to April 2024, the Financial Services and the Treasury Bureau (FSTB) launched the first round of public consultation on licensing for virtual asset OTC trading services, aiming to bring physical OTC activities under regulation for the first time. The consultation covers spot exchange between virtual assets and fiat currencies, as well as related fiat remittance services (such as BTC, USDT to HKD or USD). In June 2025, authorities published a second round of legislative proposals, further establishing a unified licensing and regulatory framework for virtual asset service providers. All entities offering virtual asset trading or custody services in Hong Kong—regardless of service format or channel—must apply for a license or register with the SFC. Banks and stored value facility providers involved in virtual asset activities will be regulated by the Hong Kong Monetary Authority (HKMA). Stablecoin issuers operating only in the primary market and approved by the HKMA may receive exemptions. In February 2025, the SFC also released the “A‑S‑P‑I‑Re” regulatory roadmap, outlining five pillars—Access, Safeguard, Product, Infrastructure, and Reconnection—to build a stronger virtual asset regulatory ecosystem in Hong Kong.

Hong Kong is moving from limited pilot programs toward comprehensive, full-chain coverage in virtual asset regulation, with a more complete regulatory framework taking shape.

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

Drawing on the CARF framework and trends in Hong Kong’s crypto regulatory policies, this article analyzes the possible effects of CARF implementation from the perspectives of four types of market participants: crypto trading platforms, individual investors, custodians, and traditional financial intermediaries.

4.1 Crypto-Asset Trading Platforms

If CARF is legislated in Hong Kong, licensed crypto trading platforms and other qualifying crypto-asset service providers may be classified as RCASPs. These platforms will be required to conduct tax due diligence on clients, verify tax residency, and collect and report account and transaction information according to CARF requirements. In practice, platforms may need to update KYC procedures, add new data fields, and upgrade internal systems to generate compliant reports. Fulfilling reporting obligations may increase compliance costs and operational burdens, but it will also help platforms strengthen client screening and internal controls, optimizing the trading environment.

4.2 Individual Investors

Individual investors are likely to be the most directly affected by CARF implementation. If an investor is a Hong Kong tax resident, crypto transactions—including buying, selling, exchanging, or payments—conducted on local platforms will no longer remain solely as internal records, but may be automatically exchanged by the Hong Kong IRD with foreign tax authorities. For non-Hong Kong tax residents, transactions conducted through Hong Kong RCASPs may also be reported to their home tax authorities. In short, it will become increasingly difficult for investors to use decentralization or anonymity to evade taxes on crypto transactions.

4.3 Crypto-Asset Custodians

The impact of CARF on crypto-asset custodians depends on their business scope and activities. If a custodian provides only pure custody (such as cold wallet storage or custody reporting) and does not directly facilitate client trading, it may be treated as a “custodial financial institution,” with reporting mainly under the CRS. However, if the custodian also offers trading or exchange services (e.g., integrated custody and exchange platforms), it may fall within the RCASP definition and be required to fulfill CARF reporting obligations similar to trading platforms—including client tax due diligence and data reporting mechanisms.

4.4 Banks and Traditional Financial Intermediaries

Although CARF primarily targets RCASPs rather than banks or traditional financial intermediaries, the compliance ecosystem in traditional finance may also be affected. For instance, banks may need to more systematically assess whether clients are transferring large sums through crypto transactions during AML or KYC reviews. Financial intermediaries offering wealth management or family office services will also need to incorporate crypto-assets into overall tax planning strategies.

5. Response Strategies: From Waiting to Proactive Compliance

As discussed above, CARF implementation may have broad impacts on market participants. The following response strategies are recommended:

For crypto trading platforms, it is advisable to assess in advance whether their business falls within the RCASP definition. If so, platforms should proactively enhance client due diligence, update client information forms, and establish systematic data collection and reporting mechanisms. Operationally, platforms can refer to existing FATCA/CRS compliance models, procure or develop reporting tools compatible with the CARF XML Schema, and provide specialized training for staff. They should also closely monitor implementation details and technical standards from the Hong Kong IRD, maintain communication with regulators during legislative consultation, and adjust processes to adapt to new rules in advance.

For individual investors, it is essential to systematically organize crypto transaction records, retain all transaction flows, cost documentation, and fee receipts, and ensure consistency and completeness for tax reporting. If investors hold crypto accounts in Hong Kong or other jurisdictions, they should plan ahead for multi-jurisdictional tax residency and potential cross-border information exchange, minimizing compliance risks from mismatched reporting systems. When choosing trading platforms, it is preferable to select licensed or regulated platforms to ensure stable data quality and reporting obligations. Overall, investors should increase awareness of tax residency, reporting obligations, and information exchange rules, and seek professional tax advice when needed.

For crypto custodians, if their business involves crypto trading, exchange, or matching, they should establish data retention and reporting channels as early as possible. Even if they provide only custody services, they should assess their reporting obligations under CARF and CRS, maintain clear business line distinctions, and strengthen internal controls.

6. Conclusion

In summary, Hong Kong’s adoption of CARF and the simultaneous update of the CRS represent not only an institutional upgrade in line with global tax transparency trends, but also a natural extension of deepening crypto-asset regulation. With its existing CRS, FATCA information exchange systems, and licensing frameworks for crypto-assets, Hong Kong is technically and institutionally ready to implement CARF. CARF is expected to further enhance tax transparency in Hong Kong’s crypto-asset market, impacting trading platforms, custodians, individual investors, and traditional financial intermediaries. As CARF progresses, all stakeholders should prepare according to their respective roles. With legislative and technical details becoming clearer, Hong Kong’s virtual asset regulatory system is set to enter a more systematic and robust development phase.

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