CARF: The Next Step in Hong Kong's Crypto Asset Regulation

December 9, 2025, Hong Kong, China, announced through the Government Gazette that authorities are conducting public consultations on proposed revisions to the implementation of the Crypto-Asset Reporting Framework (CARF) and the Common Reporting Standard (CRS). The goal is to automatically exchange taxable information related to crypto-asset transactions 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 consideration of balancing international integration with maintaining autonomous regulation and 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 a useful reference for compliance.

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 disclosure related to crypto-assets. CARF stipulates that Crypto-Asset Service Providers (RCASPs) with reporting obligations must collect tax-related information of clients and relevant transactions, report these to the tax authority of their jurisdiction, and facilitate automatic international information exchange among tax authorities. The mechanism is similar to the traditional financial sector’s CRS but focuses specifically on crypto-asset activities such as buying, selling, exchanging, custody, and transfer, with the aim of narrowing the scope for taxpayers to conceal taxable income or assets in decentralized environments and enhancing tax transparency in crypto-assets. Implemented globally, CARF is expected to help crypto-asset transactions achieve a level of tax information disclosure comparable to traditional financial sectors, gradually clarifying the blueprint for crypto-asset tax transparency.

2. Hong Kong’s Traditional Financial Information Exchange System

Hong Kong’s existing international tax information exchange system is primarily built on traditional financial sectors. It is one of the early and comprehensive jurisdictions adopting OECD’s tax transparency standards. As early as 2014, the Hong Kong government announced support for the OECD’s Automatic Exchange of Financial Account Information (AEOI) arrangements, and in 2016 amended the Inland Revenue Ordinance to establish a legal framework. Under CRS, local financial institutions that have reporting obligations—such as banks, custodians, investment entities—must identify the tax residency of account holders and controlling persons and report the information of qualifying foreign tax residents to the Hong Kong Inland Revenue Department (IRD), which then exchanges this information automatically with partner jurisdictions. In practice, Hong Kong began exchange with its first partner jurisdictions (Japan, UK, etc.) in 2018. Over time, the list of jurisdictions with which Hong Kong exchanges tax information under the CRS has expanded 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 Model 1 Intergovernmental Agreement (IGA) for FATCA with the United States. Under this agreement and the associated Foreign Financial Institution Agreement (FFI), since 2015, qualifying Hong Kong financial institutions must identify US accounts, obtain account holder consent, and report annual account balances, interest, dividends, and other relevant information to the IRS. Additionally, Hong Kong joined the Mutual Administrative Assistance in Tax Matters Convention (MAC) and signed the CRS Multilateral Competent Authority Agreement (CRS-MCAA), establishing a framework for multilateral automatic exchange of financial account information.

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

3. Evolution of Cryptocurrency Regulation Policies in Hong Kong

Hong Kong continues to improve its regulatory framework for crypto-assets, seeking a balance between market innovation and risk control.

Since 2018, the Securities and Futures Commission (SFC) has issued a series of statements and guidelines, gradually forming a virtual asset regulatory framework. In 2019, it launched a “sandbox” scheme for virtual asset trading platforms targeting professional investors, and in 2023 revised the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), establishing a licensing regime for virtual asset trading platforms. In 2024, Hong Kong approved the issuance of the region’s first virtual asset spot ETFs and other institutional products, aiming to bring traditional financial investor protection and risk management mechanisms into the virtual asset ecosystem. The main focus during this phase remains on risk control of crypto-asset activities, with broader trading scenarios less covered.

As the market expanded and investor participation increased, Hong Kong revised the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance in 2022, and from June 2023, formally implemented a licensing regime for Virtual Asset Service Providers (VASPs), regulated by the SFC. This requires licensed entities engaging in virtual asset trading platforms, such as coin dealers, trading market operators, and custody providers, to obtain SFC licensing. Licensees must comply with requirements similar to securities services, including client asset segregation, capital adequacy, platform security, compliance, and audits. However, this regime only covers electronic platforms and customer-facing activities, excluding OTC activities such as physical coin shops or face-to-face trading.

To fill regulatory gaps, the Hong Kong Financial Services and the Treasury Bureau (FSTB) launched a consultation in February to April 2024 on the first “Over-the-Counter Virtual Asset Trading Platform Licensing Scheme,” proposing to regulate physical OTC trading for the first time. This covers spot trading between virtual assets and fiat currencies, as well as related fiat remittance services (e.g., BTC, USDT, and HKD/USD exchanges). In the second legislative proposal released in June 2025, a comprehensive licensing and supervision framework for virtual asset service providers was proposed, requiring all entities offering virtual asset trading or custody services in Hong Kong to apply for licenses or register, regardless of the service channel. Banks and stored value payment providers involved in virtual asset activities would be regulated by the Hong Kong Monetary Authority (HKMA). Exemptions are available for stablecoin issuers that only conduct primary market issuance or redemption with prior approval from HKMA. In February 2025, the SFC also published a “Regulatory Roadmap,” emphasizing a “connect, ensure, product, infrastructure, and connect” approach to build a more robust virtual asset regulatory ecosystem.

Hong Kong is promoting the gradual transition from pilot projects to full-chain coverage of virtual asset regulation, with the regulatory system becoming more complete.

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

Based on understanding the principles of CARF and the trends in Hong Kong’s crypto regulation policies, this section discusses the possible impacts of CARF implementation in Hong Kong from the perspectives of four market entities: crypto exchanges, individual investors, custody institutions, 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 perform tax due diligence on clients, verify tax residency, and collect and report account and transaction information according to CARF data 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 customer verification and internal controls, improving the trading environment.

4.2 Individual Investors

Individual investors are likely to be the most directly affected once CARF is implemented. Specifically, if an investor is a Hong Kong tax resident, crypto transactions such as buying, selling, exchanging, or paying through local platforms may no longer remain solely in the platform’s records but could be automatically exchanged with foreign tax authorities via Hong Kong IRD. For non-Hong Kong tax residents, transactions through Hong Kong RCASPs could also be reported to their home country’s tax authorities. In other words, it will be increasingly difficult for investors to evade tax by relying on decentralization and anonymity features of crypto trading.

4.3 Crypto Custody Institutions

The impact on custody institutions depends on their scope and activities. Pure custody providers (cold wallets, custody reports) that do not directly facilitate buying or selling may be considered similar to “custodian financial institutions,” with information reporting mainly relying on existing channels like CRS. Those offering trading or exchange services (integrated platforms for custody and trading) could fall under the RCASP category and be required to comply with CARF reporting, building customer tax due diligence and data reporting mechanisms similar to trading platforms.

4.4 Banks and Traditional Financial Intermediaries

While CARF primarily regulates RCASPs providing crypto-asset services rather than banks and traditional intermediaries, the latter’s compliance ecosystem may be affected. Banks, for example, might need to more systematically verify whether large fund transfers are conducted via crypto transactions. Financial intermediaries offering wealth management or family office services would also need to incorporate crypto assets into overall tax planning considerations.

5. Response Strategies: From Observation to Proactive Compliance

As discussed, the implementation of CARF could have widespread impacts on market participants. Possible strategies include:

• For crypto exchanges: pre-assess whether their activities fall under RCASP scope. If yes, prepare and improve customer due diligence processes, update customer onboarding forms, establish systematic data collection and reporting systems. Referencing FATCA/CRS compliance models, acquire or develop reporting tools compatible with CARF XML schemas, and train staff accordingly. Stay close to IRD’s further guidance and technical standards, communicate with regulators during consultation, and adjust procedures proactively.

• For individual investors: organize crypto transaction records comprehensively, retain all trade logs, cost documents, and expense receipts to ensure consistent and complete reporting. For cross-jurisdictional holdings, plan ahead for reporting obligations to reduce risks of non-compliance due to mismatched systems. Prefer platforms that are licensed or regulated to ensure data quality and reporting reliability. Overall, improve understanding of tax residency, reporting duties, and information exchange rules; seek professional tax advice when needed.

• For custody institutions: if involved in trading, exchange, or matching activities, establish channels for storing and reporting crypto transaction data. Even if providing custody services only, evaluate potential reporting obligations under CARF and CRS, and maintain clear business boundaries and internal controls.

6. Conclusion

In summary, Hong Kong’s adoption of CARF and the concurrent revision of CRS reflect an institutional upgrade aligned with the global trend of tax transparency. Building on existing CRS, FATCA, licensing frameworks, and technological infrastructure, Hong Kong is well-positioned to implement CARF effectively. Its rollout will further enhance the transparency of Hong Kong’s crypto market, affecting platforms, custodians, individual investors, and traditional financial intermediaries. During this process, entities should tailor their preparations according to their roles. As legislation and technical standards become clearer, Hong Kong’s virtual asset regulation system will evolve into a more systematic and robust framework.