Hong Kong is making strides to position itself as a leading global hub for cryptocurrency, yet the city faces calls for faster regulatory action from industry leaders. With a current total of only two fully licensed virtual asset trading platforms—Hash Blockchain and OSL Digital Securities—many crypto exchanges are still navigating the lengthy licensing process.
Vincent Chok, CEO of Hong Kong-based First Digital Trust, expressed hopes for a more accelerated regulatory framework. “It is understandable that Hong Kong’s current approach to regulation in trading is more conservative and slower than some other jurisdictions since it prioritizes the protection of investors,” Chok said. However, he emphasized the need for a swifter regulatory response to keep pace with the rapidly evolving digital asset industry.
New Regulations and Their Impact
As of June 1, operating an unlicensed virtual asset trading platform (VATP) in Hong Kong has become a criminal offense. The Securities and Futures Commission (SFC) has also released an “alert list” of suspicious or unlicensed virtual asset trading platforms that may target Hong Kong investors. These measures reflect the city’s commitment to protecting investors but also highlight the regulatory hurdles facing emerging crypto businesses.
Comparisons with Dubai
First Digital Trust, listed as an Emerging Giant in Asia Pacific by KPMG and HSBC in 2022, believes that Hong Kong is lagging behind in regulating USD-denominated stablecoins compared to Dubai, which has adopted a more global approach. Chok looks forward to Hong Kong implementing regulations for these stablecoins in the near future.
In a notable development, Jingdong Coinlink Technology Hong Kong Limited, a subsidiary of JD Technology Group, has announced plans to launch a 1:1 stablecoin pegged to the Hong Kong dollar (HKD). The Hong Kong Monetary Authority (HKMA) has recognized this initiative as part of its The Sandbox program, which supports innovative financial technologies.
Banks’ Cautious Approach to Crypto Custody
Chok also indicated that banks are unlikely to rush into offering digital asset custody services due to the inherent risks and liabilities. Instead, established trust structures have already begun providing these services. In contrast, the UAE recently permitted Standard Chartered to offer crypto custody services, marking a significant step in the region’s digital asset ecosystem. On September 10, Standard Chartered launched its digital asset custody service in collaboration with Brevan Howard Digital, focusing initially on Bitcoin (BTC) and Ethereum (ETH).
Hong Kong’s Advancements in Web3 and CBDCs
Despite a slower licensing process, Hong Kong is making notable progress in Web3 and central bank digital currencies (CBDCs). The city’s exchange-traded funds (ETFs) for BTC and ETH feature a unique ‘in-kind’ subscription mechanism, allowing direct subscription and redemption with digital assets. This innovative approach simplifies investment processes and offers flexibility to investors.
Hong Kong’s Trust and Company Service Provider licensing also stands out for enabling trust structures to hold digital assets, a feature that enhances custody services and legacy management compared to other jurisdictions. Additionally, the HKMA’s Project Ensemble, introduced on August 28, aims to explore the tokenization of real-world assets and interbank settlements using a wholesale CBDC (wCBDC). This initiative builds on earlier trials involving tokenized deposit settlements with HSBC and Ant Group technology, as well as pilot transactions using the e-HKD CBDC.
Conclusion
As Hong Kong seeks to enhance its position as a global cryptocurrency hub, the need for accelerated regulatory measures is evident. The city’s cautious approach to regulation contrasts with the faster-moving crypto landscapes in other jurisdictions like Dubai. However, Hong Kong’s advancements in Web3 technologies and CBDCs signal a commitment to integrating digital finance into its financial system, paving the way for future growth in the digital asset sector.
September 2024, Cryptoniteuae