At the start of Hong Kong Fintech Week, today Hong Kong’s government made a policy statement about crypto-assets, showing a cautious but slightly more open approach to what it refers to as virtual assets (VA).
The first pillar of the policy is a plan to regulate service providers in addition to its existing opt-in regulation of crypto exchanges. The key change is currently regulated crypto exchanges are restricted to professional investors and only one exchange has been licensed to date.
Secondly, the Securities and Future Commission will conduct a public consultation regarding how retail investors can be given a ‘suitable degree’ of access to crypto. It also acknowledges that ETFs have been allowed in other jurisdictions and is ‘open to the possibility’ in Hong Kong.
“They’re starting to warm to the idea of pushing into retail,” said Dave Chapman of BC Technology Group which runs OSL, the only Hong Kong licensed exchange. “And I think the reason why they’re doing that is you can either try to provide consumer protection in the region of the people that you’re trying to protect. Or ultimately they’re just going to go and use a service abroad anyway.” Chapman was talking during Hong Kong Fintech Week.
Finally, the government will review property rights for tokenized assets and explore the legality of smart contracts.
“The Government is prepared to embrace this future, and we welcome the clustering of Fintech and VA community and talents in Hong Kong, and we will promote the sustainable development of financial services across the whole VA value chain,” said Mr Christopher Hui, Secretary for Financial Services and the Treasury.
The policy statement described “the whole VA value chain, covering issuance of VA, tokenisation, trading and settlement platforms, financing and asset management, and custody.”
Bear in mind that some Hong Kong crypto firms moved to Singapore, which itself announced a conservative set of consultations last week. For example, Singapore is considering imposing knowledge and education requirements on non-accredited investors before they can invest in cryptocurrencies.
Allowing banks to interact with crypto service providers
Hong Kong emphasized its adherence to the “same activity, same risks, same regulation” principle. It says it plans to regulate service providers for AML and investor protection similarly to what is “currently applicable to traditional financial institutions”.
The upside of this increased oversight is that “financial intermediaries and banks will be able to partner with licensed VA Exchanges.”
The government’s caution is highlighted by its own description of the opportunities that crypto offers which emphasizes the metaverse, tokenized real world assets, and CBDC.
“Hong Kong shows signs of a vibrant VA ecosystem, as demonstrated by NFT issuance in our market, presence of Metaverse developers, and use of DLT in trade finance etc,” said the policy statement. “Further opportunities can be realised if we cast our sight further on more use cases, e.g. trading arts and collectibles, tokenising vintage goods, or in the case of financial innovations, tokenising a wide spectrum of products such as debt securities.”