Hong Kong Government Issues Policy Statement on Development of Virtual Assets

On the 31st of October, the Government issued a policy statement on the development of Virtual Assets (VA) in Hong Kong.

The statement sets out the Government’s policy stance and approach towards developing a vibrant sector and ecosystem for VA in Hong Kong. The following topics are covered in the statement:

1. Vision and approach: As an international financial center, Hong Kong is open and inclusive towards the global community of innovators engaging in VA businesses. The Government, in conjunction with the financial regulators, are working towards providing a facilitating environment for promoting sustainable and responsible development of the VA sector in Hong Kong. We will put in place timely and necessary guardrails to mitigate actual and potential risks in line with international standards, so that VA innovations can thrive in Hong Kong in a sustainable manner.

2. Regulations: With consistency, predictability and clarity gradually established by a comprehensive regulatory framework, we have a solid foundation to further embrace financial innovations and technology development brought by the rapid development of VA globally. As we step up our preparatory work for a new licensing regime for VA Service Providers, we are ready to engage with global VA Exchanges and invite them to set foot in Hong Kong for new business opportunities.

The Securities and Futures Commission will be conducting a public consultation on how retail investors may be given a suitable degree of access to VA, and Hong Kong will be open to the possibility of having Exchange Traded Funds (ETFs) on VA in our market.

The Government is open to future review on property rights for tokenized assets and the legality of smart contracts, so as to facilitate their development in Hong Kong.

Consultation outcome and next steps will be announced in due course by the Hong Kong Monetary Authority on the regulatory regime for stablecoins.

3. Pilot projects: The Government and the regulators are exploring a number of pilot projects to test the technological benefits brought by VA and their further applications in the financial markets. These projects include non-fungible token (NFT) issuance for Hong Kong Fintech Week 2022, Green bond tokenisation, and e-HKD.

4. Way forward: The vision presented in the policy statement will be achieved by facilitating policies, comprehensive and balanced regulations, risk-based guardrails, as well as our pilot projects. The Government sincerely invites the global VA community to join hands with us and leverage on Hong Kong’s status as an international financial center to realize the potential of financial innovations under a clear, agile and facilitating regulatory environment, adhering to best international standards and practices.

The Financial Secretary, Mr Paul Chan, said, “The policy statement explains in detail our vision and approach, regulatory regimes, thoughts on investors’ exposures, and our pilot projects to embrace the technological benefits and financial innovations brought by VA. Our policy stance on VA is now clearly communicated to the global markets and it serves to demonstrate our commitment and determination to explore financial innovations together with the global VA community.”

The Secretary for Financial Services and the Treasury, Mr Christopher Hui, said, “We recognize the potential of DLT and Web 3.0 to become the future of finance and commerce, and under proper regulation they are expected to enhance efficiency and transparency. 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.”

As previously mentioned, Hong Kong has been working relentlessly on the virtual asset space. In fact, the Hong Kong Monetary Authority presented its completed Aurum retail central bank digital currency (CBDC) prototype on Oct. 21. The system, developed in conjunction with the Bank for International Settlements (BIS) Innovation Hub, has a unique structure that reflects the intricacies of the existing system for issuing money in Hong Kong.

Also, the Hong Kong University of Science and Technology (HKUST) announced the launch of its first virtual reality (VR) campus in August. Aiming for building a MetaHKUST, Hong Kong’s university embraces immersive learning in metaverse classrooms and much more.

This being said, there is no doubt that we will be hearing much more from Hong Kong, a country that is working towards widespread virtual asset adoption, with a crypto-readiness score of 8.6.