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Hong Kong’s finance regulator calls for ‘a more solid foundation’ for crypto

BusinessCryptoHong Kong's finance regulator calls for 'a more solid foundation' for crypto
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HONG KONG – Christopher Hui first heard about crypto from some friends who were running investment funds and investing in virtual assets. Now, as Secretary for Financial Services and the Treasury of Hong Kong (FSTB), he is developing the policy direction for the sector.

During the Hong Kong Fintech Week, held in early November, he asked one of his employees if he should get his first virtual asset. The bureau is conducting a non-fungible token (NFT) offering – one of a few pilots that the regulator is rolling out alongside tokenizing green bonds and a central bank digital currency (CDBC), e-HKD.

While the industry had known for some time that a regulatory framework was coming, it did not expect a change in stance. Several stalls and panels at Fintech Week were related to the metaverse, and top regulators came out to advocate for the city The comeback as a crypto hub, of which Huai was the most prominent.

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Crypto currently falls under multiple regulators in Hong Kong. The Hong Kong Monetary Authority is investigating the stablecoin, the Securities and Futures Commission takes on enforcement responsibilities.

Department head, FSTB, sets out more macro approach to regulation. It seems to indicate that crypto is to be kept within financial regulation, and to open up areas such as allowing retail investors under the upcoming regulatory framework, which was not there before.

Hui’s stature and his presence at a Hong Kong Fintech Week panel speaking on crypto is a clear indication that Hong Kong regulators see it as part of the city’s economic future.

Hui echoed by other high profile figures in Hong Kong regulatory bodies who look down on crypto Fitting into mainstream finance. When asked what he thinks about crypto’s founding ideals, Hui said that he views crypto as more of an investment instrument than a bid for independence from fiat currency.

He seemed tentatively optimistic about its applications. “Potentially, this is going to be a change in how society and the economy work,” he said of the underlying technology in an interview with CoinDesk, adding that “it is not built overnight.”

The most important use cases for them are: “My inclination is to look at these investments and what’s behind them, underlying them,” he said.

He said he is most excited about tokenizing green bonds, which further streamline the cumbersome process of issuance and investment.

Hong Kong has already issued $10 billion worth of green bonds in multiple currencies, including the US dollar, euro and renminbi. The pilot will focus on institutions and the entire value chain, from issuance to settlement, asset servicing, secondary trading and custody.

Hui also said that there are many areas in which technology can actually remove barriers, for example shortening the subscription for initial public offerings.

Comparisons are often made between Hong Kong and Singapore and the competition between the two to capture businesses. For Hui, Hong Kong’s “one country, two systems” is its key differentiating feature, referring to how the city is part of China but can organize its own affairs. He pointed to an acceleration program that allows Hong Kong companies to access industries in China.

blocks ready

The authorities often play the role of a mediator that Hong Kong plays between China and the rest of the world. When it comes to virtual assets, given the ban in China, Hong Kong is not playing it’s role – so what role is it playing?

“We have been able to bring together investments on a global scale,” Hui said. “We can also manage and channel these investments in a well-regulated and sustainable way.”

He underlined the credibility that he said Hong Kong has as a gateway to China and its relationship with the international community.

Hui puts it down to a mix of factors, citing Hong Kong’s “rule of law, regulation, commercial functioning”.

Hui declined to provide further details on whether the newly launched Hong Kong Currency Fund would consider investing in crypto companies. “They are bound by their own mandate and policies,” he added.

CoinDesk wrote unsure about companies Hong Kong may or may not dictate its own policy when it comes to crypto. Hui is adamant that it can.

Asked if Beijing has given regulatory assurances specifically on cryptocurrencies, Hui said, “It’s more business as usual because ultimately we are operating one country, two systems. We have our own regulatory systems.” Yes, we have our own legal systems.

Over the past month, all eyes were on the party congress across the border where Xi Jinping was confirmed for a third term. Chinese stocks fell right after. Political developments have affected investor confidence in Hong Kong.

But Hui didn’t look worried. “Hong Kong is an international financial centre, so basically our stock performance reflects the overall sentiment,” Hui said. He said that the functioning of the markets is going on smoothly. “No systemic risk is presented,” he said.

He would also welcome crypto companies leaving China. “Hong Kong is a very open place,” Hui said. “Anyone who meets our laws and requirements is welcome.”

Hui said the “blocks are ready” to build the ecosystem with upcoming VASP governance and mentorship. “We are definitely more clear in terms of where we stand,” he said, calling it “a more solid foundation.”

moving with the market

At the opening of Fintech Week, Hong Kong announced that it is attempting to come back again as a crypto hub. The regulator said it was open to discussing a crypto futures exchange-traded fund (ETF), and allowing licensed exchanges to serve retail users.

Until a few months ago, there was little indication that Hong Kong was considering anything other than a Professional investor-only environment. “It’s progressive,” Hui said. “We move with the market, we move with the industry, we are with them in their journey to mitigate risk, manage them and grow this ecosystem.”

Previous policy directives prohibited licensed platforms from providing services to retail traders, but also required all exchanges to secure licenses. Currently, retail traders mostly use unlicensed platforms.

Hong Kong investors are able to invest in US crypto ETFs which may offer more liquidity than Hong Kong. Still, the announcements show that there are more options on the table.

That regulators are more open to discussion is a running theme of Hui’s answers. He refrained from giving more details on the regulator’s rules, standards and requirements for retail investors. “We need to consult the market,” he said.

Although there have already been reports that Hong Kong will open up to retail, the regulations, standards and timeline are still undecided. He underlined the importance of investor education.

from hong kong Attempting to Come Back as a Crypto Hub The move comes in a year of market turmoil that saw the crash of Terra, the liquidation of VC funds and stricter regulations on crypto like Singapore.

“It doesn’t come out of nowhere,” Hui said of the timing. He pointed to Hong Kong’s experience accumulated through introducing an opt-in system for virtual asset exchanges to obtain certain licenses that allow them to deal in securities and provide automated trading services, as well as Same goes for fund managers dealing with virtual assets.

This crypto winter has made people more discerning about what works and what doesn’t, he said. “This is the perfect time to take stock.”

The views and opinions expressed here are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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