On December 9, 2025, Hong Kong announced through a government gazette that it was launching a public consultation on the implementation of the Crypto-Asset Reporting Framework (CARF) and related revisions to the Common Reporting Standard (CRS). The goal is to automatically exchange tax-related information on crypto-asset transactions with relevant 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 actively established a local implementation timetable. This arrangement reflects Hong Kong's consideration of balancing alignment with the international system with maintaining its own regulatory pace and market stability. Taking this public consultation as an opportunity, this article will briefly review the CARF framework, introduce Hong Kong's current tax information exchange system, trace the evolution of crypto-asset regulation, and analyze the impact of Hong Kong's implementation of CARF on different market participants, aiming to provide industry practitioners and investors with useful references for compliance.
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 the disclosure of cross-border tax information related to crypto assets. CARF stipulates that Crypto Asset Service Providers (RCASPs) with reporting obligations must collect tax-related information on their clients and related transactions and submit it to the tax authorities in their respective jurisdictions. Ultimately, the tax authorities automatically exchange this information internationally. CARF's mechanism is similar to the CRS in the traditional financial sector, but CARF focuses on the buying, selling, exchanging, custody, and transfer of crypto assets, aiming to reduce the space for taxpayers to conceal taxable income or assets using the decentralized environment and improve the tax transparency of crypto assets.
The global rollout of the CARF framework is expected to help crypto asset transactions achieve a level of tax information disclosure comparable to that of traditional finance, indicating that the blueprint for tax transparency in crypto assets is gradually becoming clearer. 2. Information Exchange in Hong Kong's Traditional Financial Sector Hong Kong's existing international tax information exchange system is primarily built upon the traditional financial sector. Hong Kong is one of the earliest and most comprehensive jurisdictions to align with OECD 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 amended 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 of account holders and their controllers, and report information on eligible offshore tax resident accounts to the Hong Kong Inland Revenue Department (IRD). The IRD 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 its first batch of partner jurisdictions (Japan, the UK, etc.) in 2018. Since then, the number of "reporting jurisdictions" exchanging tax information with Hong Kong under the Schedules to the Hong Kong Inland Revenue Ordinance has continuously expanded, increasing from the initial 75 to over 120 by 2020. Beyond implementing CRS, Hong Kong also actively engages in other forms of international cooperation on tax information exchange. In November 2014, Hong Kong and the United States signed the Intergovernmental Agreement on Cooperation for the Implementation of the U.S. Foreign Account Tax Compliance Act (FATCA) (FATCA IGA). Under this agreement and its subordinate Foreign Financial Institution Agreement (FFI), starting in 2015, eligible Hong Kong financial institutions were required to identify their U.S. accounts and, with the account holder's consent, report the account balances, interest, dividends, and other relevant information to the U.S. Internal Revenue Service (IRS) annually. Furthermore, Hong Kong acceded to the Convention on Mutual Administrative Assistance in Tax Matters (MAC) and, based on this, signed the Multilateral Competent Authority Agreement on Common Reporting Standards (CRS-MCAA), thus establishing a framework for the automatic exchange of CRS financial account information with multilateral partners. Regarding the exchange of traditional financial account information, Hong Kong has developed a relatively mature technological 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 in the field of crypto assets. Therefore, this article will continue to explore the development trajectory of Hong Kong's crypto asset regulation and its interaction with the traditional financial sector's tax ecosystem. 3. Evolution of Regulatory Policies in Hong Kong's Crypto Asset Sector Regarding crypto asset regulation, Hong Kong has continuously improved its regulatory system, striving to achieve a balance between market innovation and risk control. Since 2018, the Hong Kong Securities and Futures Commission has successively issued regulatory statements and guidelines, gradually forming a regulatory framework for virtual assets. Subsequently, in 2019, Hong Kong launched a "sandbox" regulatory mechanism for virtual asset trading platforms targeting professional investors, and finally amended the Anti-Money Laundering Ordinance (AMLO) in 2023, formally establishing a statutory licensing system for virtual asset trading platforms. Simultaneously, in 2024, Hong Kong approved the issuance of Asia's first batch of institutional-grade products, including virtual asset spot ETFs, aiming to introduce investor protection and risk management mechanisms from traditional financial markets into the virtual asset ecosystem. Overall, the regulatory focus at this stage remained on risk control in crypto asset activities, and did not yet fully cover a wider range of trading scenarios. As the market size expanded and investor participation increased, Hong Kong amended the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) in 2022, and formally implemented the Virtual Asset Service Provider (VASP) licensing system from June 2023, with the Securities and Futures Commission (SFC) responsible for regulating licensed entities engaged in Virtual Asset Trading Platform (VATP) businesses. The system requires all platforms operating in Hong Kong that act as intermediaries in facilitating virtual asset transactions, such as those holding virtual assets on behalf of clients, operating trading markets, and safeguarding virtual assets, to obtain a license from the Securities and Futures Commission (SFC). Licensed platforms must comply with a series of requirements similar to those for securities services, including client asset segregation, capital adequacy, platform security, compliance, and auditing. However, the system only covers electronic platforms and businesses that handle client assets, and does not include physical cryptocurrency shops, over-the-counter (OTC) transactions, or other OTC scenarios within its regulatory scope. To fill this regulatory gap, from February to April 2024, the Hong Kong Financial Secretary and the Treasury Bureau (FSTB) launched the first round of consultations on the "Licensing Regime for Virtual Asset OTC Trading Services," aiming to bring physical OTC transactions under regulation for the first time. Its main content covers spot exchanges between virtual assets and fiat currencies, as well as related fiat currency remittance services (such as exchanges between BTC/USDT and HKD/USD). In the second round of the "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. The proposal suggests 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. Banks and stored value payment institutions participating in virtual asset activities will be regulated by the Hong Kong Monetary Authority (HKMA). Stablecoin issuers may be exempt if they only issue or redeem in the primary market and obtain approval from the HKMA. In February 2025, the SFC also released the "A-S-P-I-Re" regulatory roadmap, clarifying that Hong Kong will build a more robust virtual asset regulatory ecosystem through five pillars: access, protection, products, infrastructure, and connectivity. Hong Kong is gradually moving from partial pilot programs to full-chain coverage of virtual asset regulation, and the outline of its 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 a grasp of Hong Kong's crypto regulatory policy trends, this article discusses the potential impact of CARF's implementation in Hong Kong from the perspectives of four market participants: cryptocurrency trading platforms, individual investors, custodian institutions, and traditional financial intermediaries. 4.1 Crypto Asset Trading Platforms If CARF legislation is implemented in Hong Kong, licensed cryptocurrency trading platforms and other eligible cryptocurrency service providers may be identified as RCASPs (Registered Crypto Asset Service Providers). These platforms will be required to conduct tax due diligence on their clients, verify their tax residency status, and collect and report account and transaction information according to CARF data requirements. In practice, platforms may need to update their KYC processes, add data fields, and upgrade their internal systems to generate reports that meet relevant requirements. Fulfilling reporting obligations may increase the platform's compliance costs and operational burden, but it will also help the platform improve its client verification and internal control capabilities, and optimize its internal trading environment. 4.2 Individual Investors Individual investors are likely to be the group most directly impacted by the implementation of CARF. Specifically, if an investor is a Hong Kong tax resident, their transactions involving the buying, selling, exchanging, or making payments of crypto assets through local platforms will no longer remain only in the platform's backend records but may be automatically exchanged to other countries by the Hong Kong Inland Revenue Department. If an investor is not a Hong Kong tax resident, their account and transaction information may also be exchanged to their home country's tax authorities when they transact through Hong Kong's RCASP. In other words, investors will find it difficult to evade taxes by leveraging the decentralized and anonymous characteristics of crypto transactions. 4.3 Crypto Asset Custodians The impact of CARF on crypto asset custodians depends on the scope of their business and the nature of their activities. If they only provide pure custody (such as cold wallet storage, custody reports, etc.) and do not directly facilitate buying and selling for clients, they may theoretically be considered similar to "custodian financial institutions," and their information reporting will still mainly rely on existing channels such as CRS. If a custodian also provides buying and selling matching or exchange services (such as an integrated platform for custody and exchange trading), it may fall under the scope of RCASP and be required to fulfill CARF reporting obligations similar to those of crypto trading platforms, and to establish a customer tax due diligence and data reporting mechanism based on the standards of crypto trading platforms. 4.4 Banks and Traditional Financial Intermediaries While CARF primarily regulates RCASPs that provide crypto asset services, rather than traditional financial intermediaries such as banks, the compliance ecosystem of traditional finance may still be affected. For example, when enforcing AML or KYC requirements, banks may need to more systematically understand whether clients are transferring large sums of money through crypto transactions. Furthermore, financial intermediaries providing wealth management and family office services also need to consider crypto assets in their overall tax planning. 5. Response Strategies: From Observation to Proactive Compliance As mentioned above, the implementation of CARF may have a wide-ranging impact on market participants. This article proposes possible response strategies: For cryptocurrency trading platforms, they can pre-assess whether their business falls under the RCASP category. If applicable, they can proactively deploy and improve corresponding customer due diligence processes, update customer information forms, and establish a systematic data collection and reporting mechanism. Operationally, platforms can also refer to the current compliance models of FATCA/CRS, procure or develop reporting tools that comply with CARF XML Schema requirements, and arrange professional training for internal staff. Meanwhile, closely monitor 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 procedures in advance to adapt to the rules. For individual investors, it is necessary to systematically organize cryptocurrency transaction records, retain all transaction details, cost documents, and expense vouchers to ensure complete and consistent information for tax declarations. If investors hold cryptocurrency accounts in Hong Kong or other jurisdictions, they need to make advance arrangements for reporting obligations regarding overseas assets or income in the context of multiple tax residency statuses and potential cross-border information exchange, reducing compliance risks arising from inconsistencies in different reporting systems. When choosing a trading platform, it is advisable to prioritize licensed or regulated platforms to ensure more stable data quality and reporting obligations. Overall, investors need to improve their understanding of tax residency status, reporting obligations, and information exchange rules, and seek assistance from professional tax advisors when necessary. For crypto custody institutions, if their business involves the buying, selling, exchanging, or matching of crypto assets, they need to establish channels for retaining and reporting crypto transaction data as early as possible. At the same time, even if they only provide custody services, they need to assess the scope of their potential reporting obligations in conjunction with CARF and the existing CRS system, maintain a clear division of business lines, and improve internal controls. 6. Conclusion In summary, Hong Kong's introduction of CARF and simultaneous advancement of CRS revision is not only an institutional upgrade in line with the international trend of tax transparency, but also a natural extension against the backdrop of the gradual deepening of crypto asset regulation. Based on the existing CRS, FATCA information exchange regime, and cryptocurrency licensing regulatory framework, Hong Kong possesses the technical and institutional feasibility to implement CARF. The implementation of CARF is expected to further enhance the tax transparency of Hong Kong's cryptocurrency market, impacting trading platforms, custodians, individual investors, and traditional financial intermediaries. During the CARF rollout, various stakeholders should make differentiated preparations based on their respective roles. With the legislation finalized and technical details gradually clarified, Hong Kong's virtual asset regulatory system will enter a more systematic and robust development phase.
Catherine
Anais
Weatherly
Kikyo
Joy