Author: Center for Development of Digital Economy Research
[Editor’s note] The Hong Kong Special Administrative Region government announced in 2022 that it will become a global virtual asset trading center. On October 31, it officially released the “Policy Declaration on the Development of Virtual Assets in Hong Kong”, which clarifies the policy stance and policy measures of the Hong Kong government’s commitment to developing a vibrant virtual asset trading center and industry ecosystem. The Hong Kong Global Virtual Asset Trading Center has laid the core positioning of Hong Kong as an international financial center in the national “14th Five-Year Plan” for digital economy planning with high-quality financial development and an open financial market, and also undertakes the important mission of integrating into the global development of the national digital economy.
1. The virtual asset trading center has become an important “breakthrough point” for Hong Kong to strengthen its international financial center
With the global enthusiasm for the concept and technology of the metaverse, the top-level design of governments across the country and industry application scenarios are gradually landing. The future opportunities brought by virtual assets entering Web3.0 cannot be ignored, and the virtual asset market has become indispensable. This is not only an important step for Hong Kong to consolidate and strengthen its international financial center, but also an important economic ecosystem for integrating into the national digital economy and metaverse/Web3.0 development.
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As early as 2019, Hong Kong was given a corresponding role in the national digital economic development pattern. In the “Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area” issued by the State Council, it clearly stated that it supports Hong Kong in building an international financial center, playing a leading role in the financial field, consolidating and enhancing Hong Kong’s international financial center status, promoting finance to develop towards high-end and high-value-added directions, and jointly supporting Guangzhou and Shenzhen, two national regional financial centers, to support the Greater Bay Area to become an international financial hub. The “14th Five-Year Plan” of the country in 2021 further proposed to support Hong Kong in enhancing its status as an international financial center and strengthening the functions of international asset management center and risk management center.
Virtual assets are currently very attractive to global financial innovators and investors. Hong Kong has always held an open and inclusive attitude towards innovators engaged in virtual asset business as an international financial center with world-class financial infrastructure, legal and regulatory systems, and also appreciates and encourages innovators to carry out distributed ledger technology (DLT) field and develop more cost-effective, inclusive, flexible, and epoch-making new financial innovation solutions. At the same time, it actively promotes the sustainable development of all financial services on the entire virtual asset value chain, covering virtual asset issuance, tokenization, trading and payment platforms, financial and asset management, custody, etc. Therefore, the Hong Kong government is cooperating with financial regulatory agencies to focus on the improvement of laws, regulations, and regulatory systems, fully considering the continuous evolution and innovation of virtual assets, maintaining the sustainability of the industry, and creating a more convenient and safer ecological environment for the development of the industry.
2. The Hong Kong SAR government is steadily promoting policy guidelines and regulatory mechanisms, and has achieved phased milestones
Government and regulatory agencies have studied the introduction of three pilot programs (NFT of Fintech Week, green bond tokens, and digital harbor dollars) to test the technological benefits of virtual assets and attempt to further apply related technologies to financial markets. In February of this year, under the government’s green bond plan, tokenized green bonds worth HKD 800 million were successfully issued, marking the world’s first tokenized green bond issued by a government. This successful issuance symbolizes a milestone for Hong Kong in combining advantages in the bond market, green and sustainable finance, and financial technology. Moreover, the meaning and positioning of “digital harbor dollars” here differs from that of the “digital RMB” being promoted at the national level. “Digital RMB” is the digital form of legal currency issued by the People’s Bank of China, while “digital harbor dollars” are the backbone and support of stablecoins that bridge legal currency and virtual assets. The declaration describes stablecoins as “mediums of exchange for cryptocurrency and legal currency.”
The Hong Kong SAR government and regulatory agencies have always formulated a complete set of regulatory frameworks for virtual assets, covering virtual asset fund and full discretionary account management, distribution of virtual asset-related products, virtual asset trading, etc., based on the principle of “same business, same risk, same rules”. There is international consensus on the regulatory scope, and appropriate regulatory requirements need to be formulated separately for different areas of stablecoins in terms of governance, stabilization, and redemption mechanisms. Through the previous consultation on the draft, the Hong Kong Monetary Authority received 58 opinions from well-known industry institutions and issued a summary of the discussion paper on crypto assets and stablecoins on January 31, 2023, which clearly recommended that certain activities related to stablecoins be brought under regulation, supporting the risk-based and flexible regulation of stablecoins, and expecting to implement them in 2023-2024. Based on the specific regulatory requirements of the “Summary”, appropriate regulatory requirements will be formulated in various fields, including but not limited to ownership, governance and management, financial resource requirements, risk management, anti-money laundering and anti-terrorism financing, user protection, regular audit and disclosure requirements.
In order to further implement the complete regulatory framework, the Hong Kong government is committed to launching work on the establishment of a licensing system for virtual asset service providers. In February of this year, the Securities and Futures Commission of Hong Kong announced the public consultation of proposed regulations for virtual asset trading platform operators, focusing on “whether licensed platform operators should be allowed to provide services to retail investors” and “how to protect investors.” The goal is to allow retail trading under the new cryptocurrency exchange licensing system starting June 1. A spokesperson for the Securities and Futures Commission said that “Bitcoin” and “Ethereum” are the two digital assets most likely to be listed on Hong Kong’s trading platforms. At present, the Hong Kong Securities and Futures Commission is conducting a trial of cryptocurrency trading, which only allows professional investors with about HKD 8 million in bank assets to participate. After the rules are promulgated, it will gradually open to other retail investors under certain conditions. However, individual investors will only be able to deal with “high liquidity” cryptocurrencies at that time.
Three. The Global Virtual Asset Trading Center in Hong Kong has significant implications for the global development of the digital economy.
Competing as a global virtual asset center will directly benefit Hong Kong’s international status, drive the development of the financial services industry, strengthen its position as an international financial center, attract more international capital, promote financial innovation and financial technology, and enhance high-quality employment opportunities. Looking back, we have to admit that compared with Singapore, Hong Kong is half a step slower in terms of Web 3.0 policy and action. However, Hong Kong’s overall financial strength still makes it the most important financial center in Asia and even the world. This is because of the strong traditional financial industry in Hong Kong, a positive attitude towards new financial formats, a strong entrepreneurial atmosphere, more professional financial services, and a more complete financial regulatory system, among other advantages. Of course, behind this is the advantage of national top-level design, the far-reaching layout of national digital economic globalization, and the strong support formed by the important positioning of the Guangdong-Hong Kong-Macao Greater Bay Area as an overall international financial hub.
Therefore, we believe that in innovative financial issues such as virtual asset trading, Hong Kong should not pursue “running fast” but “running steadily”, adhering to the cognitive concept of “openness, compatibility, and win-win”, ensuring sustainable development with high quality and high value in promoting financial services, financial technology, and innovative finance, enhancing Hong Kong’s position as an international financial center, consolidating the global strategic positioning of national digital economic globalization and the “Belt and Road”.