Hong Kong issues a virtual asset policy declaration, maintaining a cautious approach
As a declaration, Hong Kong's statement still "speaks louder than actions."Author: Runsheng, ChainCatcher
Half a month ago, Hong Kong's Financial Secretary Paul Chan made a high-profile statement, saying, "We will soon release a policy declaration regarding the development of virtual assets in Hong Kong, to showcase our vision of making Hong Kong an international virtual asset center to the global industry," indicating Hong Kong's FOMO sentiment towards the development of the crypto industry, which also piqued the curiosity of the crypto sector: what kind of regulatory concessions is the Hong Kong government willing to offer?
Today, during the opening of Hong Kong FinTech Week, the Hong Kong Financial Services and the Treasury Bureau officially released the "Policy Declaration on the Development of Virtual Assets in Hong Kong," clarifying the government's policy stance and guidelines regarding the virtual asset industry and ecosystem in Hong Kong.
The "Declaration" is divided into five parts: "Vision and Guidelines," "Regulation," "Investor Access to Virtual Assets," "Pilot Programs," and "Summary and Outlook," totaling over 3,600 words.
In terms of "Vision and Guidelines," based on the attractiveness and development opportunities of virtual assets for global investors, the Hong Kong government believes that virtual assets have become indispensable in the market and holds an open and inclusive attitude towards innovators engaged in virtual asset business globally.
The Hong Kong government believes that with proper regulation, relevant technologies can effectively reduce or even solve existing issues in payments, settlements, and other areas. Given the coexistence of "risks" and "opportunities" in the development of new fields, such as the actual and potential risks posed to financial stability, consumer protection, and the fight against money laundering and terrorist financing, the Hong Kong government continues to implement the principle of "same business, same risks, same rules," and will set out necessary regulations in a timely manner, referencing changes in international regulatory trends.
The "Declaration" summarizes the virtual asset regulatory framework established by the government and regulatory agencies over the past few years, primarily outlining a "opt-in" approach for licensing virtual asset exchanges and issuing guidelines to relevant institutions regarding virtual asset management and trading.
Public information shows that Hong Kong currently still lacks a dedicated legal framework for the virtual asset industry, and instead issues corresponding licenses within the virtual asset framework based on existing financial service licenses for companies applying for virtual asset licenses. In December 2020, OSL Exchange announced that it had obtained the first virtual asset license issued by the Hong Kong Securities and Futures Commission, which is also the only cryptocurrency license issued in Hong Kong.
However, the Hong Kong government also recognizes that a "consistent, clear, and comprehensive regulatory framework" is beneficial for embracing the financial innovations and technological developments brought about by the rapid growth of global virtual assets, and is "willing to connect with the global virtual asset industry and invite relevant exchanges to explore business opportunities in Hong Kong." Accordingly, the Hong Kong government is currently committed to establishing a "new licensing system" for virtual asset service providers.
Previously, from November 2020 to January 2021, the Hong Kong SAR government’s Financial Services and the Treasury Bureau conducted a public consultation on amending the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) and the licensing system for virtual asset service providers (VASP). The "Amendment Bill," based on the consultation summary, establishes a licensing and regulatory system for virtual asset service providers and incorporates it into statutory legislation. On July 6, 2022, the amendment bill completed its first reading in the Hong Kong Legislative Council, and according to government sources, the bill is expected to be passed in the first quarter of 2023.
What are the differences between the old and new licensing systems? Financial Secretary Paul Chan stated during a media interview at FinTech Week this morning that compared to the opt-in nature of the old licensing system, the new licensing system is statutory, and regulation adheres to the principle of "similar risks, similar regulations." For virtual asset exchanges or trading platforms, the government will implement similar regulatory measures as for financial institutions, including internal controls and disclosure requirements.
Can the new licensing system provide services to retail investors? This is another important topic of concern for industry insiders. After all, Hong Kong's licensing system can only cater to professional investors or institutions. Previously, Elizabeth Wong, the licensing supervisor of the Hong Kong Securities and Futures Commission (SFC) and head of the FinTech department, confirmed that the regulatory agency is considering allowing retail investors to directly invest in crypto assets. Additionally, Bloomberg reported, citing informed sources, that Hong Kong plans to implement a mandatory licensing scheme for cryptocurrency platforms in March next year, which will allow retail trading, although details and timelines have not yet been finalized, and public consultation will be conducted first.
The "Declaration" addresses this in the section on "Investor Access to Virtual Assets," stating, "The SFC will conduct public consultation on the appropriate extent to which retail investors can buy and sell virtual assets under the new licensing system." Paul Chan further explained that the Anti-Money Laundering and Counter-Terrorist Financing Ordinance pertains to how to regulate virtual asset exchanges or trading platforms, and the next step is retail participation, "This will be done in two phases."
The "Declaration" also points out that the government is open to the introduction of virtual asset exchange-traded funds ("ETFs") in Hong Kong, and the SFC will soon issue a circular regarding this. The government will enhance investor education to ensure appropriate regulatory arrangements are in place.
It is noteworthy that the Hong Kong government has launched three pilot programs to test the technological benefits brought by virtual assets and demonstrate its determination to collaborate with the global virtual asset industry to explore financial innovation. The three pilot programs are:
- Issuing NFTs as attendance certificates during the 2022 Hong Kong FinTech Week;
- Tokenization of government green bond issuance for institutional investors to subscribe;
- Digital Hong Kong dollar, serving as the "backbone" and pillar connecting fiat currency and virtual assets.
Among them, the issuance of NFTs and securitized tokens represents a breakthrough attempt by the Hong Kong government, which has not been seen among major countries and regions' governments before. At the same time, the Hong Kong government has proposed using the digital Hong Kong dollar as the "backbone" and pillar connecting fiat currency and virtual assets, a statement not made by other governments.
In summary, Hong Kong's actions today are similar to the regulatory actions of governments in the United States, the United Kingdom, and others, proposing a general regulatory direction and expressing support for the crypto industry, but without issuing specific regulatory policies, reflecting a "cautious openness" attitude.
In the competition to become a global crypto financial center, Hong Kong still has a long way to go.
