At the opening of Hong Kong's flagship Fintech conference last month, the city's officials issued a policy statement on virtual assets, announcing that Hong Kong is “ready to engage” with global virtual asset service providers and invite them to the city.
This policy statement not only demonstrates Hong Kong's confidence in the future of financial innovation brought by virtual assets (VA) and Web 3.0, but also shows its determination to stay relevant as an international financial centre:
As an international financial centre, Hong Kong is open and inclusive towards the global community of innovators engaging in VA businesses... We recognise VA is here to stay, given how it has attracted attention of global investors and is increasingly viewed as a conduit for financial innovations, not to mention the future opportunities that will be opened up as VA moves into the areas of Web 3.0 and the Metaverse.
Key takeaways from this policy statement include:
introducing a new licensing regime for Virtual Asset Service Providers (VASP), which will align requirements for VA exchanges in terms of AML/CTF and investor protection to those currently applicable to traditional financial institutions;
announcing a public consultation on how retail investors could have a suitable degree of access to digital assets, while signaling Hong Kong's openess to having Exchange Traded Funds on VA. The Securities and Futures Commission (SFC) soon followed up with a circular;
signalling openness to property rights for tokenised assets and the legality of smart contracts;
discussing continous effort to implement a risk-based, proportionate, and agile framework for stablecoins regulation;
exploring several pilot projects to test the technological benefits brought by VA and their further applications in the financial markets, including NFT issuance for the Hong Kong Fintech Week, green bond tokenisation and e-HKD.
Among other things, this statement represents a significant change of position on retail crypto trading by Hong Kong's authorities: current rules restrict crypto trades to institutional investors with a portfolio of at least HK$8m (US$1m). It also stands in contrast with Singapore's recent efforts to restrict retail crypto trading.
Commentators view this as an effort by Hong Kong to position itself as a much more open jurisdiction for crypto trading as compared to Singapore, which is especially interesting in the context of mainland China's ban on crypto.
Hong Kong once wore the crypto crown in Asia, being the home of many global exchanges' headquarters or regional offices. However, in recent years Singapore has gradually taken the position away, by actively exploring regulation and welcoming the crypto industry, despite mixed messages at times. According to Chainanlysis, Hong Kong received about US$74bn in terms of value of crypto assets received last financial year, trailing the $100bn received by Singapore.
It is unclear how the recent collapse of FTX and the turbulence it causes to the crypto market will impact on Hong Kong's position. We will continue to follow up on developments.