On December 9, 2025, the Government of the Hong Kong Special Administrative Region (SAR) announced through a Government Gazette that the authorities are launching a public consultation regarding the implementation of the Crypto-Asset Reporting Framework (CARF) and relevant amendments to the Common Reporting Standard (CRS). The goal is to facilitate the automatic exchange of tax-related information on crypto-asset transactions with relevant partner tax jurisdictions starting 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), the active determination of a local implementation timeline reflects Hong Kong's balanced approach: aligning with the international system while maintaining its own regulatory pace and market stability. Taking this public consultation as an opportunity, this article will briefly review the content of the CARF framework, introduce Hong Kong's current tax information exchange system, and trace the evolution of crypto-asset regulation, thereby analyzing the impact of CARF implementation in Hong Kong on various market participants. The aim is to provide industry practitioners or investors with useful guidance 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 and developed by the Organisation for Economic Co-operation and Development (OECD), used to regulate the disclosure of cross-border tax information related to crypto-assets. CARF stipulates that Reporting Crypto-Asset Service Providers (RCASPs) must collect tax-related information about their clients and related transactions, report it to the tax authorities in their jurisdiction, and finally, the tax authorities will automatically conduct an international intformation exchange. The mechanism of CARF is similar to the CRS in traditional finance, but CARF focuses on the purchase, sale, exchange, custody, and transfer of crypto-assets, aiming to narrow the space for taxpayers to use the decentralized environment to conceal taxable income or assets and enhance the tax transparency of crypto-assets. The global promotion and implementation of the CARF framework is expected to help crypto-asset transactions achieve a level of tax information disclosure comparable to the traditional financial sector, indicating that the blueprint for crypto-asset tax transparency is becoming clearer.

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

Hong Kong's existing international tax information exchange system is mainly built upon the traditional financial sector. Hong Kong is one of the earliest and most 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 in 2016, it amended the Inland Revenue Ordinance to establish the supporting legal framework. Under the CRS mechanism, local financial institutions with reporting obligations (banks, custodial institutions, investment entities, etc.) are required to identify the tax residency status of account holders and their controlling persons, and report information on eligible accounts of foreign tax residents to the Hong Kong Inland Revenue Department (IRD). The IRD then conducts the automatic exchange of information with other partner jurisdictions. In terms of the concrete implementation of the CRS mechanism, Hong Kong began its first automatic exchange of tax-related financial account information in 2018 with the first batch of partner jurisdictions (e.g., Japan, the UK). Since then, the number of "Reportable Jurisdictions" listed in the Schedule of the Inland Revenue Ordinance that exchange tax information with Hong Kong has continuously expanded, increasing from the initial 75 to over 120 by 2020.

In addition to implementing CRS, Hong Kong actively engages in other forms of international cooperation for tax information exchange. In November 2014, Hong Kong signed the Intergovernmental Agreement to Implement the US Foreign Account Tax Compliance Act (FATCA IGA) with the United States. According to this agreement and the accompanying Foreign Financial Institution Agreement (FFI Agreement), eligible Hong Kong financial institutions must identify their US accounts and, with the consent of the account holders, report information on account balances, interest, dividends, and other relevant details to the US Internal Revenue Service (IRS) annually, starting from 2015. Furthermore, 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 conducting the automatic exchange of CRS financial account information with multilateral partners.

Hong Kong has formed a relatively mature technical foundation and institutional system for the exchange of traditional financial account information. Against this backdrop, the introduction of CARF in Hong Kong is an extension and modification of the existing CRS/FATCA information exchange model into the crypto-asset field. Therefore, this article will continue to explore the development trajectory of Hong Kong's crypto-asset regulation and its interaction with the tax ecosystem of the traditional financial sphere.

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

In crypto-asset regulation, Hong Kong is continuously refining its regulatory system, striving to achieve a balance between market innovation and risk prevention.

Starting from 2018, the Hong Kong Securities and Futures Commission (SFC) progressively issued regulatory statements and guidelines, gradually forming a virtual asset regulatory framework. Subsequently, in 2019, it introduced a virtual asset trading platform "sandbox" regulatory regime targeting professional investors, and this eventually culminated in the 2023 amendment of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), officially establishing a statutory licensing regime for virtual asset trading platforms. Concurrently, in 2024, Hong Kong approved the issuance of Asia's first virtual asset spot ETFs and other institutional-grade products, intending to introduce investor protection and risk management mechanisms from the traditional financial market into the virtual asset ecosystem. Overall, the regulatory focus during this phase was still concentrated on risk control for crypto-asset activities and had not yet fully covered a broader range of transaction scenarios.

As the market scale expands and investor participation increases, 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 starting from June 2023. The Securities and Futures Commission (SFC) is responsible for regulating licensed entities engaging in Virtual Asset Trading Platform (VATP) business. This regime requires all platforms operating in Hong Kong that facilitate virtual asset transactions as an "intermediary" — such as holding tokens on behalf of clients, operating a trading market, or providing virtual asset custody for clients — to obtain a license from the SFC. Licensed platforms must comply with a series of requirements similar to securities services, including client asset segregation, capital adequacy, platform security, compliance, and auditing. However, this regime only covered electronic platforms and businesses that touch client assets, excluding OTC scenarios such as physical crypto shops and counter trading.

To fill the gaps in the regulatory system, the Hong Kong Financial Services and the Treasury Bureau (FSTB) launched the first consultation on the Virtual Asset Over-The-Counter (OTC) Trading Services Licensing Regime between February and April 2024, proposing to include physical OTC trading in regulation for the first time. Its main content covers spot exchange between virtual assets and fiat currency, as well as related fiat currency remittance services (e.g., exchange 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. It proposes requiring all entities providing virtual asset trading or custody services in Hong Kong, regardless of the service format or channel, to apply for a license or registration with the SFC. Banks and Stored Value Facilities (SVF) involved 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 are approved by the Hong Kong Monetary Authority. In February 2025, the Hong Kong SFC also published 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, Safeguards, Products, Infrastructure, and Relationships".

Hong Kong is promoting the virtual asset regulation from partial pilot programs to full-chain coverage, and the contours of the regulatory system are becoming increasingly complete.

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

Based on an understanding of the CARF framework principles and the grasp of Hong Kong's crypto regulatory policy trends, this article discusses the potential impacts of CARF implementation in Hong Kong from the perspectives of four types of market participants: crypto-asset trading platforms, Web3 Participants (individual investors), custodial institutions, and traditional financial intermediaries.

4.1 For Crypto-Asset Trading Platforms

If CARF is legislated and implemented in Hong Kong, licensed crypto-asset trading platforms and other eligible crypto-asset service providers are likely to be identified as RCASP. Relevant platforms will be required to conduct tax due diligence on customers, verify their tax residency status, and collect and report account and transaction information according to CARF data requirements. Operationally, platforms may need to update their Know-Your-Customer (KYC) processes, add data fields, and upgrade internal systems to generate reports that meet the relevant requirements. Fulfilling the reporting obligation may increase the compliance costs and operational burden for platforms, but at the same time, it will also help platforms enhance their customer vetting and internal control capabilities, and optimize the internal trading environment.

4.2 For Web3 Participants (Individual Investors)

Web3 participants (individual investors) are likely to be the group that feels the most direct impact after the implementation of CARF. Specifically, if the investor is a Hong Kong tax resident, their crypto-asset transactions — such as buying, selling, exchanging, or paying — conducted through local platforms will no longer just remain in the platform's backend records but may be automatically exchanged to other countries via the IRD. If the investor is a non-Hong Kong tax resident, their account and transaction information when trading through a Hong Kong RCASP may also be exchanged to their home country's tax authority. In other words, investors will find it difficult to evade tax by relying on the decentralized and anonymous characteristics of crypto transactions.

4.3 For Crypto-Asset Custodial Institutions

The degree of impact of CARF on crypto-asset custodial institutions depends on the institution's scope of business and nature of activities. If an institution only provides pure custody (such as cold wallet storage, custody reports) and does not directly facilitate buying and selling for clients, it may theoretically be considered similar to a "custodial financial institution," and its information reporting would still primarily rely on existing channels such as CRS. However, if the custodial institution also provides buying/selling facilitation or exchange services (for example, an integrated platform for custody and on-exchange trading), it may fall within the scope of an RCASP, be required to fulfill CARF reporting obligations similar to crypto trading platforms, and build customer tax due diligence and data reporting mechanisms based on the standards for crypto trading platforms.

4.4 For Banks and Traditional Financial Intermediaries

Although CARF directly regulates primarily RCASPs that provide crypto-asset services, rather than traditional financial intermediaries like banks, the compliance ecosystem of traditional finance may also be affected. For instance, banks may need to more systematically understand whether customers are conducting large-value fund transfers through crypto transactions when executing Anti-Money Laundering (AML) or Know-Your-Customer (KYC) requirements. Furthermore, when providing wealth management and family office services, financial intermediaries will also need to incorporate crypto-assets into their consideration for overall tax planning.

5. Response Strategies: Shifting from Wait-and-See to Proactive Compliance

As mentioned earlier, the implementation of CARF may have a wide-ranging impact on market participants, and this article proposes possible response strategies:

For crypto trading platforms, it is advisable to pre-assess whether their business falls within the scope of an RCASP. If applicable, they can prepare in advance by deploying and refining the corresponding customer due diligence processes, updating customer information forms, and establishing a systematic data collection and reporting mechanism. Operationally, platforms can also refer to the existing compliance models of FATCA/CRS, procure or develop reporting tools that comply with the CARF XML Schema requirements, and arrange professional training for internal personnel. Concurrently, they should closely follow the specific implementation details and technical standards released by the IRD, 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 crypto-asset transaction records, retaining all transaction flow, cost documents, fee vouchers, etc., to ensure complete and consistent information during tax declaration. If investors hold crypto-asset accounts in Hong Kong or other jurisdictions, they need to make prior arrangements for the reporting obligations of overseas assets or income in the context of multi-country tax residency and potential cross-border information exchange, to mitigate compliance risks arising from inconsistent alignment between different reporting systems. When choosing a trading platform, it is also advisable to prioritize licensed or regulated platforms to ensure more stable data quality and reporting obligations. Overall, investors need to enhance their awareness of tax residency status, reporting obligations, and information exchange rules, and seek professional tax consultant assistance when necessary.

For crypto custodial institutions, if their business involves the buying, selling, exchange, or facilitation of crypto-assets, they need to establish channels for the retention and reporting of crypto transaction data as early as possible. At the same time, even if only providing custody services, they need to combine CARF with the existing CRS system, assess the scope of reporting obligations they may undertake, maintain a clear demarcation of business lines, and perfect internal controls.

6. Conclusion

In summary, Hong Kong's introduction of CARF and the synchronized advancement of CRS amendments are not only institutional upgrades to conform to the international trend of tax transparency but also a natural extension in the context of gradually deepening crypto-asset regulation. Based on the existing CRS and FATCA information exchange systems and the crypto-asset licensing regulatory framework, Hong Kong possesses both the technical and institutional conditions for implementing CARF. The implementation of CARF is expected to further enhance the tax transparency of Hong Kong's crypto-asset market, impacting trading platforms, custodial institutions, Web3 Participants (individual investors), and traditional financial intermediaries. Throughout the CARF implementation process, various parties should prepare differently based on their respective roles. As the legislation is put into effect and the technical details are gradually clarified, Hong Kong's virtual asset regulatory system will also enter a more systematic and stable phase of development.

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