CARF, the next step for Hong Kong's crypto asset regulation
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CARF, the next step for Hong Kong's crypto asset regulation
Briefly review the CARF framework, introduce Hong Kong's current tax information exchange system, outline the evolution of crypto asset regulation, and analyze the impact of Hong Kong's implementation of CARF on different market participants.
Navigating Web3 tides with focused insightsAuthor: Fintax
On December 9, 2025, the Hong Kong Special Administrative Region government announced via official gazette that authorities have launched a public consultation on proposed amendments to implement the Crypto-Asset Reporting Framework (CARF) and updates to the Common Reporting Standard (CRS). The goal is to begin automatic exchange of tax-related crypto asset transaction information with partner tax jurisdictions from 2028, and to implement the revised CRS rules from 2029. Although Hong Kong has not yet signed the CARF Multilateral Competent Authority Agreement (MCAA), it has proactively established a local implementation timeline—an arrangement reflecting Hong Kong’s balancing act between aligning with international systems, maintaining autonomous regulatory pacing, and preserving market stability.
Taking this public consultation as an opportunity, this article offers a brief overview of the CARF framework, introduces Hong Kong’s current tax information exchange system, traces the evolution of crypto asset regulation, and analyzes the potential impact of CARF implementation on various market participants—aiming to provide useful compliance references for industry practitioners and investors.
1. Overview of the CARF Framework
The Crypto-Asset Reporting Framework (CARF) is an international standard for automatic exchange of tax information developed by the Organisation for Economic Co-operation and Development (OECD), designed to regulate cross-border tax disclosure related to crypto assets. Under CARF, reportable crypto-asset service providers (RCASPs) are required to collect tax-relevant information about clients and transactions, submit it to their local tax authority, which then automatically exchanges the data with other tax authorities internationally. The mechanism operates similarly to the Common Reporting Standard (CRS) in traditional finance, but focuses specifically on activities such as buying, selling, exchanging, custody, and transferring crypto assets. Its purpose is to reduce opportunities for taxpayers to conceal taxable income or assets within decentralized environments, thereby enhancing tax transparency for crypto assets. As CARF is promoted globally, it is expected to bring the level of tax disclosure for crypto asset transactions closer to that of traditional financial assets, indicating that the roadmap toward crypto tax transparency is becoming increasingly clear.
2. Tax Information Exchange in Hong Kong's Traditional Financial Sector
Hong Kong’s existing international tax information exchange system is primarily built around traditional financial sectors. Hong Kong is one of the earlier and more comprehensive jurisdictions to align with OECD tax transparency standards. As early as 2014, the Hong Kong government announced support for the OECD’s Automatic Exchange of Financial Account Information (AEOI) framework, and in 2016 amended the Inland Revenue Ordinance to establish the necessary legal framework. Under the CRS, locally based reporting financial institutions (such as banks, custodians, and investment entities) must identify the tax residency status of account holders and controlling persons, and report information on qualifying non-resident accounts to the Hong Kong Inland Revenue Department (IRD), which then conducts automatic information exchanges with partner jurisdictions. In practice, Hong Kong began its first round of automatic exchanges of financial account tax information with initial partner jurisdictions—including Japan and the UK—in 2018. Since then, the number of “reportable jurisdictions” listed under the schedule of Hong Kong’s Inland Revenue Ordinance has steadily expanded, increasing from 75 initially to over 120 by 2020.
Besides implementing CRS, Hong Kong has also actively engaged in other forms of international cooperation on tax information exchange. In November 2014, Hong Kong signed an intergovernmental agreement (IGA) with the United States to facilitate compliance with the U.S. Foreign Account Tax Compliance Act (FATCA). Under this IGA and associated FFI Agreements (Foreign Financial Institution Agreements), qualified Hong Kong financial institutions have been required since 2015 to identify their U.S. accounts and, with account holder consent, annually report account balances, interest, dividends, and other relevant data to the U.S. Internal Revenue Service (IRS). Additionally, by joining the Convention on Mutual Administrative Assistance in Tax Matters (MAC) and subsequently signing the Multilateral Competent Authority Agreement on the Common Reporting Standard (CRS-MCAA), Hong Kong established the institutional framework for multilateral CRS-based automatic exchange of financial account information.
In the area of traditional financial account information exchange, Hong Kong has developed a relatively mature technical infrastructure and institutional system. Against this backdrop, the introduction of CARF in Hong Kong represents an extension and adaptation of the existing CRS/FATCA information exchange model into the domain of crypto assets. Therefore, the following section will further examine the interaction between the development of Hong Kong’s crypto asset regulation and the tax ecosystem of traditional finance.
3. Evolution of Hong Kong’s Regulatory Policy on Crypto Assets
In regulating crypto assets, Hong Kong has continuously refined its regulatory system, striving to balance market innovation with risk control.
Starting in 2018, the Securities and Futures Commission (SFC) of Hong Kong issued a series of regulatory statements and guidelines, gradually forming a virtual asset regulatory framework. This was followed by the launch of a "sandbox" regulatory mechanism for virtual asset trading platforms serving professional investors in 2019, culminating in the 2023 amendment to the Anti-Money Laundering Ordinance (AMLO), which formally established a statutory licensing regime for virtual asset trading platforms. Meanwhile, in 2024, Hong Kong approved the launch of Asia’s first spot virtual asset ETFs and other institutional-grade products, aiming to integrate investor protection and risk management mechanisms from traditional financial markets into the virtual asset ecosystem. Overall, the focus during this phase remained largely on risk control of crypto asset activities, without comprehensive coverage of broader transaction scenarios.
As market scale expanded and investor participation increased, Hong Kong amended the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) in 2022, and officially implemented the Virtual Asset Service Provider (VASP) licensing regime in June 2023, with the SFC overseeing licensed entities operating virtual asset trading platforms (VATPs). The regime requires all platforms operating in Hong Kong that act as intermediaries to facilitate virtual asset transactions—such as holding client assets, running trading markets, or providing custody—to obtain a license from the SFC. Licensed platforms must comply with a range of requirements similar to those for securities firms, including client asset segregation, capital adequacy, platform security, compliance, and audit obligations. However, the regime covers only electronic platforms and services involving access to client assets, excluding physical coin shops and over-the-counter (OTC) trading desks.
To fill this regulatory gap, between February and April 2024, the Financial Services and the Treasury Bureau (FSTB) launched the first round of public consultation on a licensing regime for OTC virtual asset trading services, proposing to bring physical OTC operations under supervision for the first time. The scope includes spot exchange services between virtual assets and fiat currencies, along with related remittance services (e.g., converting BTC, USDT to HKD/USD). In the second-round Legislative Proposal to Regulate Dealing in Virtual Assets, published in June 2025, authorities further laid out a unified licensing and regulatory framework covering all virtual asset service providers, requiring any entity offering virtual asset trading or custody services in Hong Kong—regardless of format or channel—to apply for a license or register with the SFC. Banks and stored value facility operators engaging in virtual asset activities would be supervised by the Hong Kong Monetary Authority (HKMA). Stablecoin issuers conducting issuance or redemption solely in the primary market and approved by HKMA may qualify for exemptions. In February 2025, the SFC also released its "A-S-P-I-Re" regulatory roadmap, outlining five pillars—Access, Safeguards, Products, Infrastructure, and Linkage—for building a more robust virtual asset regulatory ecosystem.
Hong Kong is moving from localized pilot programs toward full-chain coverage in virtual asset regulation, and the contours of its regulatory system are becoming increasingly complete.
4. Potential Impact of CARF Implementation on Hong Kong’s Crypto Market
Based on understanding the principles of the CARF framework and trends in Hong Kong’s crypto regulatory policy, this article discusses the potential implications of CARF implementation in Hong Kong from the perspectives of four key market participants: cryptocurrency trading platforms, individual investors, custodians, and traditional financial intermediaries.
4.1 Crypto Asset Trading Platforms
If CARF is enacted into law in Hong Kong, licensed crypto asset trading platforms and other qualifying crypto asset service providers could be classified as RCASPs. These platforms would then be required to conduct tax due diligence on clients, verify tax residency, and collect and report account and transaction data in accordance with CARF specifications. Practically, platforms may need to update their KYC procedures, add new data fields, and upgrade internal systems to generate compliant reports. Fulfilling reporting obligations may increase compliance costs and operational burdens, while simultaneously helping platforms enhance client screening and internal controls, thus improving the overall trading environment.
4.2 Individual Investors
Individual investors are likely to feel the most direct impact once CARF takes effect. Specifically, if an investor is a Hong Kong tax resident, their crypto asset purchases, sales, exchanges, or payments conducted through local platforms will no longer remain confined to platform records—they may be automatically shared by the Hong Kong IRD with foreign tax authorities. If an investor is not a Hong Kong tax resident, their account and transaction data processed through a Hong Kong-based RCASP may still be exchanged with their home country’s tax authority. In other words, investors will find it increasingly difficult to use the decentralization and anonymity features of crypto transactions to evade tax obligations.
4.3 Crypto Asset Custodians
The extent of CARF’s impact on crypto asset custodians depends on their business scope and nature of activities. If a custodian provides pure custody services (e.g., cold wallet storage, custody reporting) without directly facilitating trades, it may theoretically be treated as a "custodial financial institution," with information reporting continuing primarily through existing channels like CRS. However, if a custodian also offers trading execution or exchange services (e.g., integrated custody and exchange platforms), it may fall within the definition of RCASP and be subject to CARF reporting obligations similar to trading platforms, requiring it to establish client tax due diligence and data reporting mechanisms aligned with platform standards.
4.4 Banks and Traditional Financial Intermediaries
While CARF primarily regulates RCASPs providing crypto asset services rather than traditional financial intermediaries like banks, the compliance environment for traditional finance may still be affected. For example, when fulfilling AML or KYC requirements, banks may need to systematically assess whether clients are using crypto transactions for large-scale fund transfers. Moreover, financial intermediaries offering wealth management or family office services will need to incorporate crypto assets into holistic tax planning considerations.
5. Response Strategies: Shifting from Observation to Proactive Compliance
As discussed above, CARF implementation may have wide-ranging impacts on market participants. The following response strategies are suggested:
For crypto trading platforms, it is advisable to first assess whether their business falls within the scope of RCASPs. If applicable, they should proactively prepare by refining customer due diligence processes, updating client information forms, and establishing systematic data collection and reporting mechanisms. Operationally, platforms can draw on existing FATCA/CRS compliance models, acquiring or developing reporting tools compatible with CARF XML Schema requirements, and arranging staff training. They should also closely monitor detailed implementation guidelines and technical standards issued by the Hong Kong IRD, maintain communication with regulators during the legislative consultation phase, and adjust workflows in advance to adapt to new rules.
For individual investors, it is essential to systematically organize crypto transaction records, retain all transaction histories, cost documentation, fee receipts, and related evidence to ensure completeness and consistency when filing tax returns. Investors holding crypto accounts in Hong Kong or other jurisdictions should plan ahead for their reporting obligations regarding overseas assets or income, particularly in light of multi-jurisdictional tax residency and potential cross-border information exchange, to minimize compliance risks arising from inconsistencies across different reporting systems. When selecting trading platforms, investors should prioritize licensed or regulated platforms to ensure higher data quality and stable reporting practices. Overall, investors should deepen their understanding of tax residency, reporting obligations, and information exchange rules, and seek professional tax advisory support where necessary.
For crypto custodians, if their operations involve crypto buying, selling, exchanging, or brokering, they should promptly establish data retention and reporting channels for crypto transactions. Even if offering only custody services, they should evaluate their potential reporting obligations under both CARF and the existing CRS framework, maintain clear separation of business lines, and strengthen internal controls.
6. Conclusion
In summary, Hong Kong’s adoption of CARF alongside CRS revisions represents not only a systemic upgrade in line with global trends toward tax transparency, but also a natural progression amid deepening crypto asset regulation. Building upon established frameworks for CRS, FATCA information exchange, and virtual asset licensing, Hong Kong possesses the technical and institutional readiness to implement CARF. Once implemented, CARF will further enhance tax transparency in Hong Kong’s crypto market, affecting trading platforms, custodians, individual investors, and traditional financial intermediaries alike. As CARF moves forward, each stakeholder group should make differentiated preparations according to their role. With legislation advancing and technical details becoming clearer, Hong Kong’s virtual asset regulatory system is entering a more systematic and stable phase of development.
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