"Under the Lion Rock, never admit defeat." After the announcement of Hong Kong's virtual currency policy declaration, this sentence went viral in the communities of people in the Web3 industry in Hong Kong and China. Half a month ago, Hong Kong officials intended to release news to the media, stating that they would release a policy declaration on virtual currencies at the Hong Kong Fintech Week to warm up activities and policies. On October 31, the first day of Hong Kong Fintech Week, the Financial Secretary of Hong Kong issued the "Policy Declaration on the Development of Virtual Assets" as scheduled, releasing an open and friendly attitude towards virtual assets.
In sharp contrast, at the 2019 Fintech Week, the Hong Kong Securities and Futures Commission issued the "Position Statement: Supervision of Virtual Asset Trading Platforms" and "Warning on Virtual Asset Futures Contracts", both of which took a serious regulatory attitude towards cryptocurrency. Strictly require licensed operations and can only serve professional investors. At that time, PANews interviewed Hong Kong industry insiders on site and pointed out that this was an excessive approach, but it was by no means the final solution. Hong Kong’s supervision has always adhered to the principle of leaving space and encouraging innovation. The China Securities Regulatory Commission document also foreshadowed: "In the future, it is not ruled out that after the relevant laws are revised and the industry further develops, some relevant regulations will also be revised."
Three years later, I witnessed the rapid development of the virtual asset industry and watched Singapore enjoy some of the Web3 dividends transferred from Hong Kong. This time, Hong Kong officially opened its arms to virtual assets and Web3.
Policy Support - Overall Government Attitude
Hong Kong states that as an international financial center, it has an open and inclusive attitude towards innovators from around the world engaged in the virtual asset business. The Hong Kong government is working hard to build a convenient environment and appropriate regulatory regulations to promote the virtual asset industry to flourish in Hong Kong, and welcomes talents from the financial technology and virtual asset industries to gather in Hong Kong.
Open to retail investors
Because virtual currency prices fluctuate greatly, project information disclosure is incomplete, exchange listing information is opaque and supervision is not in place, resulting in extremely high risks in investing in virtual currencies. Therefore, the 2019 "Position Statement: Supervising Virtual Asset Trading Platforms" requires that, Platform operators can only provide services to professional investors. Currently, as the market matures and many international financial institutions enter the field of virtual asset trading, Hong Kong will consider opening virtual asset trading to individuals. Hong Kong’s Securities and Futures Commission (SFC) is launching a public consultation on allowing retail investors (retail investors) to buy and sell virtual assets. Although it is only a request for comment, this is an important step, considering that even in crypto-friendly Singapore, the Monetary Authority of Singapore (MAS) requires the platform to ban services to the Singaporean public.
Exchange licensing system
In order to promote the development of virtual assets through a clear and unambiguous regulatory framework, the Hong Kong government has recently stepped up efforts to formulate a licensing system for virtual asset service providers. The system includes provisions for combating money laundering and fund-raising, and protecting investors. After the licensing system is established, Hong Kong's banks and financial intermediary structures will be able to cooperate with licensed institutions to provide customers with virtual asset trading services. In this way, virtual asset exchanges can establish extensive distribution channels in Hong Kong and embrace Hong Kong's huge financial industry. market.
Prior to this, Hong Kong did not have a regulatory system specifically for virtual asset service providers. The Securities and Futures Ordinance, which was applicable to ordinary securities, was generally applied. Therefore, there was some confusion and confusion when applying for a license for a virtual asset exchange. Obtaining relevant There are not many institutions with licenses. Hashkey and Huobi Technology are early institutions in Hong Kong and have obtained relevant licenses.
In April 2022, HashKey obtained the Type 1 (Securities Trading) and Type 7 (Automated Trading Services) licenses from the Hong Kong Securities and Futures Commission. In September this year, it obtained the Type 9 (Asset Management) license again, thus gaining access to all types of virtual asset investments. Combination license plate.
Huobi Technology obtained Type 4 (providing advice on securities) and Type 9 (asset management) licenses in July 2020. In July this year, the Hong Kong Securities and Futures Commission officially accepted Huobi Technology’s Type 1 and Type 9 (asset management) licenses. The application for a Class 7 license has not yet been approved.
Due to the particularities in each aspect of virtual asset trading, the Securities and Futures Regulations are no longer able to meet the regulatory needs of virtual asset trading, which requires the formulation of new licensing and regulatory systems.
Security Token Issuance
Prior to this, the issuance of security tokens in Hong Kong was also regulated by Hong Kong’s Securities and Futures Ordinance. The Hong Kong government is currently formulating new regulatory policies for security tokens. From March 1 next year, all securities tokens will be issued. Token trading service institutions, issuing security tokens (STO), and providing digital asset wallet services will all be subject to new policy supervision.
Issuance of virtual asset index fund ETF
The Hong Kong Securities and Futures Commission issued a circular on the same day, and will authorize the public offering of virtual asset index funds (ETFs) in Hong Kong for the first time in accordance with Sections 104 and 105 of the Securities and Futures Ordinance. The Hong Kong Securities and Futures Commission only allows the issuance of index funds for virtual asset futures traded on traditional regulated futures exchanges. Initially, it will only approve Bitcoin futures and Ethereum futures index funds traded on the Chicago Mercantile Exchange. Subsequent expansion will be considered as appropriate. category.
The circular shows that ETFs need to comply with trust and fund management requirements, and ETF issuers need to show at least three years of tracking records and regulatory compliance records. The issuer will need to demonstrate that the ETF has sufficient liquidity and the net derivatives exposure cannot exceed 100% of the ETF's total net asset value. Issuers also need to conduct necessary investor education before launching ETFs.
Commodity token issuance
Currently, the issuance and trading of commodity tokens such as NFT and GameFi are not regulated by the Hong Kong Securities and Futures Commission, and will not be regulated by it in the future. It is mainly supervised by the Commercial Crime Investigation Division of the Hong Kong Police Department from the perspective of commodity commercial fraud, because virtual goods are essentially a commodities, not securities. The FinTech Forum officially also launched an NFT issuance pilot plan to issue NFT as badges and souvenirs to forum attendees to promote the use of NFT.
In addition to NFT, Hong Kong also actively supports the tokenization of different types of goods, such as art, collectibles, antiques, etc. Hong Kong is relatively clear in this regard and has clearly divided security and commodity tokens, while the U.S. Securities and Futures Commission (SEC) and the Commodity Futures Commission (CFTC) are still competing for the right to regulate cryptocurrencies. Maybe the United States will eventually do the same. Learn from Hong Kong’s model and separate securities and commodity types for separate supervision.
Stablecoin Regulation
Stable currency is a special currency among virtual assets, which has the function of stabilizing value. For both parties to the transaction, the stability of the price of the contract object is very important. In the real world, the price of the contract object is generally priced in legal currency, such as US dollars and RMB, because the price of legal currency is generally relatively stable. In virtual asset transactions, currencies with stable values are also needed, so stable coins came into being.
There are currently three types of blockchain stablecoins: one is stablecoins USDT and USDC that are collateralized by legal currency US dollars; one is stablecoins based on excess collateralized digital currency, such as DAI; and the other is unsecured pure currency. An algorithmic stablecoin whose supply is algorithmically regulated. In May this year, the algorithmic stablecoin UST crashed to zero. A large part of the reason was that there was no mortgage asset to support it. In fact, USDT, USDC, and DAI were not greatly affected.
The thunderstorm of UST and the subsequent series of chain reactions have attracted the attention of regulatory agencies to stablecoins. The United States and Europe have already begun to formulate regulatory policies including stablecoins. This time, Hong Kong has also regarded as a virtual asset trading medium. Stable currency supervision is on the agenda, providing policy and legal protection for the healthy development of digital asset transactions.
Digital Hong Kong Dollar (e-HKD)
The digital Hong Kong dollar is a "central bank digital currency" (CBDC), and CBDC can also be regarded as a special stable currency. Currently, 81 countries around the world (accounting for more than 90% of global GDP) are exploring CBDC, including the US Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England. Judging from the latest market consultation opinions and related responses of the Hong Kong Monetary Authority, the Hong Kong Monetary Authority prefers a two-tier distribution structure for the digital Hong Kong dollar, that is, the central bank is responsible for issuing digital currency to commercial banks at the wholesale level; while commercial banks and other payment companies is responsible for exchanging it with the public.
The Hong Kong government plans to adopt a three-track approach to prepare for the possible launch of a digital Hong Kong dollar in the future. The first track aims to lay the technical and legal foundation for the future launch of the digital Hong Kong dollar, the second track is for in-depth application research and testing, and the third track is the launch of the digital Hong Kong dollar. At this year’s Fintech Week Forum, Yi Gang, Governor of the Central Bank of China, also stated that the central bank is strengthening cooperation with the Hong Kong Monetary Authority and other monetary authorities on CBDC. He believes that with the launch of the digital Hong Kong dollar (e-HKD), the world will Central bank digital currency will become more and more popular and will provide state-level protection for stablecoins that are indispensable in virtual asset transactions, because stablecoins endorsed by the state are almost impossible to explode and are more stable.
financial support
In order to support the development of financial technology and virtual assets in Hong Kong, the Hong Kong government has provided a large amount of funds to support the development of the industry. According to the interpretation of relevant Hong Kong departments, we understand that the current sources of funds to support the entrepreneurship and development of virtual assets include the following aspects:
Fintech Special Fund
After this Hong Kong Financial Week, Hong Kong will set up a US$4 billion technology fund to support the development of financial technology (Fintech), of which virtual currency assets are an important part of the support.
Cyberport Venture Fund
Hong Kong Cyberport is very supportive of Web3 entrepreneurial projects. Qualified entrepreneurial projects settled in Cyberport can receive HK$100,000 in seed funds in the first stage, HK$500,000 in the Incubation Program, and HK$300,000 in mid-term corporate accelerators. The company is gradually Mature expansion of markets outside Hong Kong can also receive a government subsidy of NT$200,000, for a total of HK$1 million in financial support.
Science and Technology Park Entrepreneurship Fund
Hong Kong Science and Technology Parks also provides HKD 100,000 in early-stage seed funds, HKD 1.29 million for mid-term incubation plans, and HKD 4.8 million for enterprise acceleration for entrepreneurial projects including Web3.
Hong Kong Investment Management Co., Ltd.
In addition to the financial support provided by the Hong Kong Science and Technology Park and Cyberport to start-up companies, Hong Kong has also learned from the Singapore model to establish the Hong Kong Investment Management Co., Ltd., which is described as the "Hong Kong version of Temasek". The fund was registered in early October this year. It previously had 30 billion US dollar funds have increased by US$30 billion, reaching a total of US$60 billion. The investment company is managed and invested by a dedicated team of investment managers, investing in high-end, high-value-added industries such as financial technology. Potential web3 projects can apply for this fund.
Talent support
The Hong Kong SAR government stated at the Fintech Week that it will set up a dedicated talent matching department to provide "nanny-style" services to Web3 companies to attract global fintech talents, including explanations of the entry process, entry arrangements for personnel, and visa processing. Obtain, and apply for funds, including 36 months of funding for company researchers (bachelor's HKD 18,000 per month, master's HKD 21,000 per month, PhD HKD 32,000 per month), and can also help the company through a talent pool Recruit experts and even provide companies with customized solutions. Hong Kong's Cyberport and Science and Technology Park also provide a full range of services for new start-ups, from very favorable rents to talent placement, and provide support in all aspects. It can be said that Hong Kong has done a lot to attract technology talents, including Web3, to start businesses and develop in Hong Kong.
In addition to attracting external financial technology talents to start businesses and develop in Hong Kong, Hong Kong also encourages local people in traditional industries to learn Web3. Hong Kong universities are also focusing on cultivating talents in the field of Web3. In September, Coindesk released the "Biggest Impact on Blockchain in 2022" In the "50 Universities" ranking, the Hong Kong Polytechnic University ranks first, first in the world, and Hong Kong accounts for 4 of the top 50. Hong Kong's scientific research level and ability to cultivate talents in the field of Web3 are at the forefront of the world.
subsequent impact
After the United States, Dubai, and Singapore, Hong Kong has also joined the ranks of competing for global virtual asset centers, providing strong support in terms of policies, funds, and talents. As the world's third largest financial center and the world's second largest IPO market, Hong Kong's virtual asset policy declaration at this moment will play a good role in promoting the development of the global digital asset industry, and will also help Hong Kong consolidate its status as a financial center. , providing new impetus for its sustainable economic development.