Hong Kong Cryptocurrency New Policy’s One-Year Anniversary A Year of Major Leaps and Key Milestone Review

One Year Later A Look Back at Hong Kong's Cryptocurrency Policy's Milestones and Big Leaps Forward

Author of the article: Meta Era invited author “0xShinChan”

As a global financial hub, Hong Kong is attracting investors from all over the world. In this context, releasing and trading virtual assets through the Hong Kong platform means closer contact with the international market and obtaining more market-oriented asset pricing.

Since the Financial Services and the Treasury Bureau of Hong Kong released the “Policy Statement on the Development of Virtual Assets in Hong Kong” a year ago, Hong Kong’s progress in virtual asset policies has been solid and strategic. This year has witnessed the birth of many key policies and events, highlighting Hong Kong’s determination to promote the development of the Web 3.0 industry, while finding a balance between regulation, investor protection, and innovation. Based on this, this article will review the important events of this year, looking back at how Hong Kong has led Asian Web 3.0 institutions and projects to the world.

Hong Kong clarifies its position on virtual asset policies

In October 2022, the Financial Services and the Treasury Bureau of Hong Kong released the “Policy Statement on the Development of Virtual Assets in Hong Kong”, clearly stating its perspective and strategy for the development of the virtual asset industry and its related technologies and ecosystems. Hong Kong aims to build a stable development environment for the industry through innovation-oriented policies, comprehensive regulatory structures, and risk-oriented strategies. Several pilot projects have already been launched to promote the application of relevant technologies.

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Although the government has repeatedly expressed its support for fintech and virtual assets, there have been voices in the local and international sectors pointing out that Hong Kong’s attitude towards the virtual asset industry lacks clarity. In fact, Hong Kong has always adopted an open and inclusive strategy towards global virtual asset business innovators. This statement undoubtedly injects new vitality into the virtual asset industry, providing a comprehensive and transparent regulatory framework, aiming to establish trust in the market and indicating the direction for its future development.

The “Policy Statement” reveals that the Hong Kong Monetary Authority has initiated preliminary work on the “Digital Hong Kong Dollar” and is cooperating with relevant Mainland authorities to expand the scope of the “Digital RMB” as a cross-border payment tool in Hong Kong. This further proves Hong Kong’s open and integrative strategy towards global virtual asset business innovators.

The Financial Secretary of Hong Kong, Paul Chan Mo-po, emphasized in his November 2022 article the Securities and Futures Commission’s (SFC) open attitude towards innovative technology while also firmly protecting the interests of investors. He pointed out that the SFC has consistently maintained regulatory oversight over virtual assets by observing their technological progress and application transformation, adhering to the principle of “same business, same risks, same rules.”

Hong Kong takes the lead as Asia’s virtual currency futures ETF leader

Following that, the Web 3.0 ecosystem in Hong Kong began to rapidly grow.On December 16, last year, Hong Kong Exchanges and Clearing Limited (HKEX) successfully introduced the first cryptocurrency ETF in Asia, further enriching its product offerings to meet the diverse needs of Hong Kong and international investors.

The two ETF products launched this time are both issued by Southbound Asset Management Limited and primarily track the Bitcoin and Ethereum futures prices on the Chicago Mercantile Exchange (CME). This step not only made Hong Kong the first market to offer Ethereum futures ETF globally but also established its leadership position in providing Bitcoin futures ETF in Asia.

Exploration of Digital Hong Kong Dollar: HKMA initiates strategic pilot test

Fast forward to May 18 this year, the Hong Kong Monetary Authority (HKMA) announced the “Digital Hong Kong Dollar” strategic exploration plan. This plan brings together 16 leading companies in the finance, payment, and technology fields to conduct pilot trials within the year, focusing on the potential applications of the “Digital Hong Kong Dollar” in six major areas: omnichannel payments, smart transactions, offline payments, asset tokenization, Web 3.0 transaction settlement, and tokenized asset clearing.

The image shows the opening speech by Eddie Yue, the Chief Executive of the HKMA, on the launch of the “Digital Hong Kong Dollar” pilot program.

The HKMA adopts a three-track strategy and actively studies the possibility of the “Digital Hong Kong Dollar” as a retail-level central bank digital currency. In this context, the HKMA seeks to deepen cooperation with key stakeholders and conduct multiple rounds of trials to clarify the specific applications and operational processes of the “Digital Hong Kong Dollar.” This feedback-driven testing approach allows the HKMA to refine and improve its digital currency implementation strategy.

The development of the “Digital Hong Kong Dollar” not only involves technological and application challenges but also closely relates to public acceptance and privacy considerations. From a regulatory and tax perspective, the “Digital Hong Kong Dollar” has drawn on the experience of digital yuan, and its application scenarios will be more diverse, potentially serving as a bridge between fiat currency and virtual assets, especially in the areas of asset tokenization and international cross-border payments, saving users transaction fees and intermediary costs.

Hong Kong Financial Regulatory Innovation: HashKey and OSL Become the First Licensed Virtual Asset Trading Platforms for Retail Users

Starting on June 1, 2023, the Hong Kong Monetary Authority (HKMA) has implemented a new licensing system for Virtual Asset Service Providers (VASP). Compared to the previous Type 1 (securities trading) and Type 7 (provision of automated trading services) licenses, which were regulated activities targeting institutional investors, the new system opens up retail trading while introducing strict entry requirements such as having a physical office in Hong Kong, qualifications for senior management, and previous trading volume and user count standards. Exchanges such as Binance, Bybit, and OKEx will be given a one-year grace period until May 31, 2024, to comply with Hong Kong regulations.

On August 3, HashKey and OSL, two major trading platforms, announced their successful migration from the “Type 1 and Type 7 licenses” to the new VASP system, becoming officially licensed trading platforms for Hong Kong retail users. HashKey platform has also partnered with Standard Chartered Bank, ZA Bank, and others to provide fiat currency deposit and withdrawal services for users.

This move is seen as a positive signal for the virtual asset market, especially considering the long-standing conservative stance of traditional financial institutions towards this market. Hong Kong’s financial regulatory authorities are increasingly trusting and incorporating virtual asset trading into their regulatory framework, which is crucial for the future development of the entire industry. HashKey and OSL, as the first compliant cryptocurrency trading platforms in Hong Kong, can serve as a demonstration for the entire industry.

JPEX Cryptocurrency Scandal: Large-scale Online Financial Fraud Case in Hong Kong

On September 13, 2023, the Securities and Futures Commission (SFC) issued a warning about JPEX and its promoters’ suspicious operations. JPEX subsequently raised withdrawal fees and limited withdrawal amounts, resulting in significantly reduced actual withdrawal amounts for users. The Hong Kong Monetary Authority and the SFC then made statements suggesting potential fraud involving JPEX. Subsequently, the Hong Kong police arrested several suspects related to this case and conducted relevant investigations. Chief Executive Carrie Lam also stated that the matter is suspected of fraud.

During this period, the SFC issued multiple warnings, but JPEX did not provide a positive response. The police also stated that JPEX’s virtual currency JPC has no actual value. Meanwhile, there has been controversy within the Hong Kong Legislative Council regarding the SFC’s regulatory efforts in this case, with the SFC responding that the previous regulatory framework limited their actions.

On September 29, the Hong Kong police held a press conference to explain the details of the JPEX case and stated that they will seek to bring the individuals involved, who have left Hong Kong, to justice through international law enforcement cooperation.

The SFC also published a specialized list of suspicious virtual asset trading platforms on September 29, with currently 6 platforms listed, to assist investors in identifying suspicious virtual asset trading platforms operating in Hong Kong and raise awareness about them.

Subsequently, the Hong Kong Treasury, Hong Kong Security Bureau, Hong Kong Investment Commission and other official organizations have all expressed their opinions, jointly promoting the follow-up and closure of this event, and carrying out their respective responsibilities to establish and implement relevant regulations and a series of rectification measures.

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