Written by: FinTax

On December 9, 2025, the Hong Kong government announced through the government gazette that authorities are conducting public consultations on the implementation of the Crypto-Asset Reporting Framework (CARF) and revisions related to the Common Reporting Standard (CRS). The goal is to automatically exchange tax information related to crypto asset transactions with relevant partner tax jurisdictions starting in 2028, and to implement the revised version of the CRS rules from 2029. Although Hong Kong has not yet signed the CARF Multilateral Competent Authority Agreement (MCAA), it is actively determining a local implementation timeline. This arrangement reflects Hong Kong's balance between aligning with international systems and maintaining its own regulatory pace to ensure market stability. Taking this public consultation as an opportunity, this article will briefly review the contents of the CARF framework, introduce Hong Kong's current tax information exchange system, outline the evolution of crypto asset regulation, and analyze the impact of CARF implementation on different market participants, aiming to provide useful references for industry practitioners or investors in compliance responses.

1. Overview of the CARF Framework

The Crypto-Asset Reporting Framework (CARF) is an international standard for the automatic exchange of tax information promoted by the Organization for Economic Cooperation and Development (OECD) to regulate cross-border tax information disclosure related to crypto assets. CARF stipulates that Reporting Crypto-Asset Service Providers (RCASPs) are required to collect tax-related information about their customers and relevant transactions and report it to the tax authorities in their jurisdiction, which will then automatically exchange international intelligence among tax authorities. The operational mechanism of CARF is similar to that of the traditional financial sector's CRS, but CARF focuses on activities such as buying, selling, exchanging, custodial services, and transferring crypto assets, aiming to reduce the space for taxpayers to hide taxable income or assets in a decentralized environment and enhance the tax transparency of crypto assets. The CARF framework is being promoted globally and is expected to help crypto asset transactions achieve a level of tax information disclosure comparable to that of the traditional financial sector, indicating that the blueprint for the tax transparency of crypto assets is gradually becoming clearer.

2. Hong Kong's Information Exchange in the Traditional Financial Sector

Hong Kong's existing international tax information exchange system is primarily built on the traditional financial sector. Hong Kong is one of the early and comprehensive jurisdictions to align with the OECD's tax transparency standards. As early as 2014, the Hong Kong government announced its support for the OECD's Automatic Exchange of Financial Account Information (AEOI) arrangement and revised the Inland Revenue Ordinance in 2016 to establish a supporting legal framework. Under the CRS mechanism, local financial institutions (banks, custodians, investment entities, etc.) with reporting obligations are required to identify the tax residency status of account holders and their controllers and report information on eligible foreign tax resident accounts to the Hong Kong Inland Revenue Department, which then conducts automatic information exchange with other partner jurisdictions. In terms of the specific implementation of the CRS mechanism, Hong Kong began its first automatic exchange of financial account tax information with the first batch of partner jurisdictions (Japan, the UK, etc.) in 2018. Since then, the number of "reporting tax jurisdictions" under the Hong Kong Inland Revenue Ordinance has continuously expanded, increasing from the initial 75 to over 120 by 2020.

In addition to implementing the CRS, Hong Kong has also actively engaged in other forms of international cooperation for tax information exchange. In November 2014, Hong Kong signed the Intergovernmental Agreement (IGA) with the United States for the implementation of the Foreign Account Tax Compliance Act (FATCA). According to this agreement and the Foreign Financial Institution Agreement (FFI Agreement) under it, starting in 2015, eligible Hong Kong financial institutions must identify their U.S. accounts and, with the account holder's consent, report information regarding account balances, interest, dividends, and other related data to the U.S. Internal Revenue Service (IRS) annually. Additionally, Hong Kong established a framework for automatic exchange of CRS financial account information with multilateral partners by joining the Convention on Mutual Administrative Assistance in Tax Matters (MAC) and signing the Common Reporting Standard Multilateral Competent Authority Agreement (CRS-MCAA).

In terms of traditional financial account information exchange, Hong Kong has formed a relatively mature technical foundation and institutional system. Against this backdrop, the introduction of CARF in Hong Kong represents an expansion and transformation of the existing CRS/FATCA information exchange model into the crypto asset sector. Therefore, this article will continue to explore the development of crypto asset regulation in Hong Kong and its interaction with the tax ecosystem of the traditional financial sector.

3. Evolution of Regulatory Policies in Hong Kong's Crypto Asset Sector

In terms of crypto asset regulation, Hong Kong has been continuously improving its regulatory system, striving to achieve a balance between market innovation and risk prevention.

Since 2018, the Hong Kong Securities and Futures Commission (SFC) has gradually released regulatory statements and guidelines, forming a virtual asset regulatory framework. Subsequently, in 2019, it launched a "sandbox" regulatory mechanism for virtual asset trading platforms aimed at professional investors, and ultimately revised the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) in 2023 to formally establish a licensing system for virtual asset trading platforms. At the same time, Hong Kong approved the issuance of Asia's first virtual asset spot ETFs and other institutional products in 2024, intending to introduce investor protection and risk management mechanisms from traditional financial markets into the virtual asset ecosystem. Overall, the regulatory focus during this phase remained on risk control of crypto asset activities and did not yet comprehensively cover a broader range of trading scenarios.

As the market size expanded and investor participation increased, Hong Kong revised the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) in 2022 and officially implemented a licensing system for Virtual Asset Service Providers (VASPs) starting in June 2023, with the SFC responsible for regulating licensed entities engaged in virtual asset trading platform (VATP) operations. This system requires that all platforms operating in Hong Kong and acting as intermediaries for virtual asset transactions, such as custodial services, trading markets, and virtual asset custody, must obtain a license from the SFC. Licensed platforms must comply with a series of requirements similar to those for securities services, including customer asset segregation, capital adequacy, platform security, compliance, and auditing. However, this system only covers electronic platforms and businesses that handle customer assets, excluding physical crypto stores and over-the-counter (OTC) trading scenarios from regulatory oversight.

To fill the regulatory gap, from February to April 2024, the Hong Kong Financial Services and the Treasury Bureau (FSTB) launched the first round of consultations on the "Licensing System for Virtual Asset Over-the-Counter Trading Services," intending to bring physical OTC trading under regulation for the first time. The main content covers spot exchanges between virtual assets and fiat currencies, as well as related fiat currency remittance services (e.g., exchanges between BTC, USDT, and HKD/USD). In the second round of "Legislative Proposal to Regulate Dealing in Virtual Assets" released in June 2025, the authorities further established a unified licensing and regulatory framework covering virtual asset service providers, proposing that all entities providing virtual asset trading or custody services in Hong Kong, regardless of service form or channel, must apply for a license or register with the SFC, while banks and stored value payment institutions participating in virtual asset activities will be regulated by the Hong Kong Monetary Authority (HKMA). For stablecoin issuers, if they only issue or redeem in the primary market and obtain approval from the HKMA, they may be exempted. In February 2025, the SFC also released the "A-S-P-I-Re" regulatory roadmap, clearly stating that Hong Kong will build a more robust virtual asset regulatory ecosystem through five pillars: "Access, Protection, Products, Infrastructure, and Connectivity."

Hong Kong is promoting the transition of virtual asset regulation from partial pilots to comprehensive coverage, and the outline of the regulatory system is becoming increasingly complete.

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

Based on an understanding of the principles of the CARF framework and insights into the trends of Hong Kong's crypto regulatory policies, this article discusses the potential impacts of CARF's implementation in Hong Kong from the perspectives of four types of market participants: crypto asset trading platforms, individual investors, custodial 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 eligible crypto asset service providers may be recognized as RCASPs. Relevant platforms will be required to conduct tax due diligence on customers, verify tax residency status, and collect and report account and transaction information according to CARF data requirements. In practical terms, platforms may need to update their KYC processes, add data fields, and upgrade internal systems to generate reports that meet the relevant requirements. Fulfilling reporting obligations may increase the compliance costs and operational burdens of platforms, while also helping them enhance customer review and internal control capabilities, optimizing the internal trading environment.

4.2 Individual Investors

Individual investors may be the group most directly affected by the implementation of CARF. Specifically, if an investor is a tax resident of Hong Kong, their transactions involving buying, selling, exchanging, or paying with crypto assets through local platforms will no longer remain just backend records on the platform but may be automatically exchanged to other countries via the Hong Kong Inland Revenue Department. If the investor is not a tax resident of Hong Kong, their account and transaction information may also be exchanged to their home country's tax authorities when trading through a Hong Kong RCASP. In other words, investors will find it difficult to evade taxes by relying on the decentralized and anonymous characteristics of crypto transactions.

4.3 Crypto Asset Custodial Institutions

The extent of CARF's impact on crypto asset custodial institutions depends on the scope of their business and the nature of their activities. If they only provide pure custody (such as cold wallet storage, custodial reporting, etc.) and do not directly facilitate buying and selling for clients, they may theoretically be viewed as similar to "custodial financial institutions," with their information reporting still primarily relying on existing channels like CRS; if custodial institutions also provide trading facilitation or exchange services (e.g., integrated platforms for custody and on-exchange trading), they may fall under the RCASP category and be required to fulfill CARF reporting obligations similar to those of crypto trading platforms, constructing customer tax due diligence and data reporting mechanisms according to the standards of crypto trading platforms.

4.4 Banks and Traditional Financial Intermediaries

Although CARF primarily regulates RCASPs providing crypto asset services rather than traditional financial intermediaries like banks, the compliance ecosystem of traditional finance may also be affected. For example, banks may need to systematically understand whether clients are transferring large sums of money through crypto transactions when executing AML or KYC requirements. Additionally, financial intermediaries providing wealth management and family office services will also need to incorporate crypto assets into their overall tax planning considerations.

5. Response Strategies: From Passive Observation to Proactive Compliance

As mentioned earlier, the implementation of CARF may have widespread impacts on market participants. This article proposes possible response strategies:

For crypto trading platforms, it is advisable to assess whether their business falls under the category of RCASP in advance. If applicable, they can proactively deploy and improve the corresponding customer due diligence processes, update customer information forms, and establish a systematic data collection and reporting mechanism. In operational terms, platforms can also refer to the existing compliance models of FATCA/CRS, procure or develop reporting tools that meet CARF XML Schema requirements, and arrange professional training for internal staff. At the same time, they should closely follow the specific implementation details and technical standards released by the Hong Kong Inland Revenue Department, maintain communication with regulatory authorities during the legislative consultation phase, and adjust processes in advance to adapt to the rules.

For individual investors, it is necessary to systematically organize crypto asset transaction records, retain all transaction statements, cost documents, and expense vouchers, ensuring that the information is complete and consistent during tax reporting. If investors hold cryptocurrency accounts in Hong Kong or other jurisdictions, they need to make advance arrangements for the reporting obligations of overseas assets or income in the context of multiple tax residency statuses and potential cross-border information exchanges, reducing compliance risks arising from inconsistencies in different reporting systems. When choosing a trading platform, it is also advisable to prioritize licensed or regulated platforms to ensure the stability of their data quality and reporting obligations. Overall, investors need to enhance their understanding of tax residency status, reporting obligations, and information exchange rules, and seek assistance from professional tax advisors when necessary.

For crypto custodial institutions, if their business involves buying, selling, exchanging, or facilitating crypto assets, they need to establish channels for retaining and reporting crypto trading data as early as possible. Additionally, even if they only provide custodial services, they should assess the scope of reporting obligations they may bear in conjunction with CARF and the existing CRS system, while maintaining clear divisions within their business lines and improving internal controls.

6. Conclusion

In summary, Hong Kong's introduction of CARF and simultaneous advancement of CRS revisions is not only an institutional upgrade in response to the trend of international tax transparency but also a natural extension in the context of the gradual deepening of crypto asset regulation. Based on the existing CRS and FATCA information exchange systems and the regulatory framework for crypto asset licensing, Hong Kong has the feasible conditions for implementing CARF at both technical and institutional levels. The implementation of CARF is expected to further enhance the tax transparency of Hong Kong's crypto asset market, impacting trading platforms, custodial institutions, individual investors, and traditional financial intermediaries. In the process of advancing CARF, various entities should make differentiated preparations based on their roles. As legislation is enacted and technical details are gradually clarified, Hong Kong's virtual asset regulatory system will also enter a more systematic and robust development phase.

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