On October 29, the Hong Kong Stock Exchange announced that it will launch the Hong Kong Stock Exchange Crypto Asset Index Series (the Index Series) on November 15, 2024, to provide reliable benchmark prices for this rapidly rising asset class of crypto assets, supporting Hong Kong's development as Asia's leading digital asset hub.
The Index Series will provide transparent and reliable benchmarks for the pricing of Bitcoin and Ethereum in the Asian time zone, committed to providing a unified reference price for crypto assets to address price discrepancies between global exchanges for such assets.
Hong Kong Stock Exchange Group CEO Charles Li said: "We are pleased to launch the Hong Kong Stock Exchange Crypto Asset Index Series to meet the regional demand for this rapidly rising asset class. By providing transparent and reliable real-time benchmarks, we hope to help investors make informed investment decisions, thereby supporting the healthy development of the crypto asset ecosystem and consolidating Hong Kong's position as an international financial center."

1. Development Trends of Crypto Assets in Hong Kong
With the continuous development of technology, virtual assets as an emerging asset class are gradually occupying an important position in the global financial market. As an international financial center, Hong Kong actively explores the development of the virtual asset field, demonstrating strong innovative vitality and foresight.
The launch of the virtual asset index series by the Hong Kong Stock Exchange is undoubtedly a significant initiative in the virtual asset field for Hong Kong. This index series will provide transparent and reliable pricing benchmarks for Bitcoin and Ethereum in the Asian time zone, helping to address the issue of price discrepancies for such assets between global exchanges. By providing real-time data and daily reference prices, public understanding of virtual asset investment trends will also be further enhanced.
The progress of cross-border payments between Hong Kong and the mainland also provides strong support for the development of crypto assets. Hong Kong Monetary Authority President Eddie Yue stated that it is expected to pilot cross-border payments with the mainland and "Faster Payment System" in the middle of next year, which will make interbank payments more convenient and efficient, providing more favorable conditions for the trading and circulation of crypto assets.
In addition, the release of the AI policy declaration in the financial market indicates Hong Kong's active exploration in the fintech field. The adoption of a dual-track model promotes the application of artificial intelligence in the financial services industry while addressing potential challenges. The Hong Kong University of Science and Technology opens AI models and computing resources, while financial regulators continue to review and update regulations and guidelines, bringing new opportunities for the development of Hong Kong's financial market.
In summary, a series of measures in Hong Kong's crypto asset field demonstrate its determination and strength in financial innovation and provide valuable references for the development of the global crypto asset market.
2. Legal Provisions for Cross-Border Payments of Virtual Assets

(1) Comparison between Mainland and Hong Kong
In the field of cryptocurrency trading, there are significant policy differences between the mainland and Hong Kong. The mainland has implemented strict restrictions on cryptocurrency trading to safeguard national financial security and social stability. The People's Bank of China has comprehensively prohibited settlement services related to cryptocurrencies and the provision of trader information services, clearly stating that cryptocurrency trading is not legally protected in China.
In addition, under current laws and regulations such as the Anti-Money Laundering Law and the Banking Law, cryptocurrency trading may be illegal. In 2021, the central bank of China, along with multiple departments, issued a notice clearly prohibiting financial institutions and payment institutions from engaging in business related to cryptocurrencies, and several local governments have imposed restrictions on cryptocurrency mining activities, closing more than 2,000 platforms involved in cryptocurrency trading.
In contrast, Hong Kong's regulation of cryptocurrencies is relatively lenient, allowing cryptocurrency trading and usage. The Hong Kong Monetary Authority and the Securities and Futures Commission implement a certain degree of regulation over cryptocurrencies, but overall, Hong Kong is seen as a crypto-friendly region.
Hong Kong's policy aims to actively explore emerging fields, support the development of fintech, and regulate and guide crypto assets as a rapidly rising asset class. In terms of laws and regulations, Hong Kong has not yet introduced specific laws targeting cryptocurrency trading, but the industry is regulated by authorities such as the Anti-Money Laundering and Terrorist Financing Ordinance.
Regulatory bodies for Hong Kong's cryptocurrency market include multiple departments such as the Hong Kong Monetary Authority, the Securities and Futures Commission, and the Anti-Money Laundering Commissioner’s Office. Among them, the Hong Kong Monetary Authority is primarily responsible for preventing money laundering and terrorist financing risks, while the Securities and Futures Commission mainly oversees investor protection.
(2) Specific Regulations in Hong Kong
Hong Kong has clear legal provisions for cross-border payments of cryptocurrencies. In terms of bank compliance reviews, Hong Kong banks, including HSBC, typically conduct strict compliance checks on transactions involving cryptocurrencies, especially when large sums of money are involved. Banks may require proof of the source of funds and detailed transaction records, and if satisfactory documentation cannot be provided, they may refuse to process the funds or freeze related accounts.
In terms of capital controls, the mainland has implemented strict regulations on the cross-border flow of funds, particularly regarding capital outflows. Converting USDT to fiat currency and remitting it to mainland bank accounts may encounter restrictions or delays.
Mainland residents typically have an annual foreign exchange limit of $50,000, and exceeding this limit may be subject to scrutiny. Large fund flows involving cryptocurrency trading may raise banks' awareness, leading to account freezes or transaction rejections, especially in the case of mainland customers' Hong Kong bank accounts.
Regarding cross-border capital flow restrictions, Hong Kong Monetary Authority President Eddie Yue stated that Hong Kong's Faster Payment System will be connected to the mainland's online payment interbank clearing system, and discussions are ongoing with the People's Bank regarding exchange rate calculations, limit settings, and regional involvement. Although Hong Kong is actively promoting cross-border payment cooperation with the mainland, regulatory policies and restrictions from both sides must still be considered in cross-border cryptocurrency payments.
3. Laws Related to Cryptocurrencies in Hong Kong
(1) Regulatory Bodies and Responsibilities
The main regulatory bodies for private digital currencies in the Hong Kong Special Administrative Region include the Securities and Futures Commission (SFC), the Hong Kong Monetary Authority (HKMA), and the Hong Kong Insurance Authority (HIA).
SFC: Mainly responsible for the regulation of private digital currencies.
The SFC clearly defined private digital currency exchanges in a public announcement made on November 3, 2020, allowing or inviting customers to trade any virtual assets in exchange for currency or virtual assets, and having previously held, manipulated, controlled, or managed any currency or virtual assets during business operations. The SFC has set specific requirements for the operational sites, organizational structure, business scope, and capital of private digital currency exchanges.
HKMA: Responsible for financial stability and the formulation of monetary policy. The HKMA categorizes cryptocurrencies into security-type cryptocurrencies, functional cryptocurrencies, and virtual goods (such as Bitcoin).
HIA: Responsible for collaborative regulation.
(2) Regulatory Sandbox System
Hong Kong fully utilizes the regulatory sandbox system to regulate the issuance and trading activities of private cryptocurrencies, exploring appropriate regulatory rules for private digital currencies.
At the end of 2019, the SFC encouraged private cryptocurrency innovation service providers to actively participate in regulatory sandbox testing and implement voluntary reporting.
In November 2020, during Hong Kong FinTech Week, the Financial Services and the Treasury Bureau announced new policy measures requiring cryptocurrency service providers to apply for virtual currency licenses, conducting comprehensive regulation of trading services for security and non-security tokens, and licensing all cryptocurrency trading platforms registered and operating in the Hong Kong Special Administrative Region. Organizations that do not obtain a license issued by the SFC will not be allowed to conduct cryptocurrency business in the Hong Kong Special Administrative Region.
In terms of anti-money laundering regulation, the HKMA released the Anti-Money Laundering and Terrorist Financing (Amendment) Ordinance in September 2019 and the Position Paper: Regulating Virtual Asset Trading Platforms on November 6, 2019, which proposed a complete set of anti-money laundering regulatory systems including customer identity verification, suspicious transaction tracking, and combating money laundering.
Exchanges should adequately conduct customer identification, including:
1. Confirming each customer's true identity, income status, investment experience, risk preferences, and investment objectives, fulfilling sufficient customer explanation obligations and necessary customer training;
2. Obtaining real IP addresses or refusing to provide services to customers who provide fake IPs or anonymous IPs;
3. Establishing a comprehensive monitoring platform for large and suspicious transactions, such as the four-step identification method for suspicious transactions (referred to as "SAFE"), which includes: (1) screen (preliminary review), giving special attention to transactions related to terrorists or criminals; (2) ask (question), targeting questioning clients; (3) find, reviewing clients' past transaction records; (4) evaluate (assessment), judging whether the transaction is suspicious based on the information at hand.
(3) Impact of the Licensing System
The licensing system for crypto asset services as stipulated in the Anti-Money Laundering and Terrorist Financing (Amendment) Ordinance 2022 has had multiple impacts.
For cryptocurrency trading platforms, the licensing system makes their operations more standardized, requiring compliance with a series of regulatory requirements, including but not limited to anti-money laundering (AML) and counter-terrorism financing (CTF) regulations, fund security, customer asset segregation, auditing and reporting, and appropriate internal controls. This helps enhance the security and credibility of trading platforms, attracting more investors.
For investors, the licensing system provides more security. Trading on licensed platforms ensures greater safety for investors' funds, while also offering more transparent market information and more standardized customer service. Moreover, the licensing system helps enhance investor confidence in the crypto asset market, promoting healthy market development.
From the perspective of the entire industry, the licensing system helps promote the healthy development of Hong Kong's crypto asset market. On one hand, it can attract more international crypto asset service providers to enter the Hong Kong market, enhancing Hong Kong's position in the global crypto asset field; on the other hand, it can also promote innovation and development in Hong Kong's local crypto asset industry, bringing new growth points to Hong Kong's economy.
4. Legal Policies on AI Application in Hong Kong's Financial Market
(1) Overview of Policy Declaration Content
The Hong Kong Special Administrative Region government issued a policy declaration on the responsible application of artificial intelligence in the financial market, clarifying a dual-track model that promotes the adoption and development of AI in the financial services industry while addressing potential challenges such as cybersecurity, data privacy, and intellectual property protection.
Financial institutions should develop AI governance strategies, adopting a risk-based approach in the procurement, use, and management of AI systems, while human oversight is crucial for mitigating potential risks.
The Hong Kong University of Science and Technology will open its developed AI models and computing resources for use in Hong Kong's financial services industry and provide consulting and training services for financial institutions in deploying internal systems or developing applications and network interfaces. Furthermore, Hong Kong's financial regulators will continue to review and update existing AI regulations and guidelines.
(2) Legal Significance of the Dual-Track Model
The dual-track model has significant legal implications.
On one hand, encouraging the financial services industry to actively explore the application of AI helps improve financial service efficiency, innovate financial products and service models, and brings new development opportunities to Hong Kong's financial market.
On the other hand, the measures to address potential risks reflect the forward-looking and prudent nature of the law. Issues such as cybersecurity, data privacy, and intellectual property protection are major legal risks that may arise in the process of applying AI in finance. Clear policy guidance and regulatory requirements can encourage financial institutions to pay more attention to compliance when applying AI, reducing legal risks.
For example, in terms of cybersecurity, financial institutions need to strengthen the security protection of AI systems to prevent hacking and data breaches. According to relevant data, financial losses due to cyberattacks over the past 20 years have exceeded $20 billion.
As an international financial center, Hong Kong has stricter cybersecurity requirements. The dual-track model in the policy declaration requires financial institutions to establish a comprehensive cybersecurity management system while adopting AI, implementing measures such as encryption technology and access control to ensure the security of financial data.
In terms of data privacy, the operation of AI systems relies on large amounts of data, and financial institutions must comply with relevant laws and regulations when collecting, using, and storing customer data to protect customers' privacy rights. The Personal Data (Privacy) Ordinance in Hong Kong imposes strict regulations on the collection, use, and disclosure of personal data, and financial institutions must ensure the legality, legitimacy, and necessity of data when applying AI, prohibiting the misuse of customer data.
In terms of intellectual property protection, the development of AI technology involves many intellectual property issues, such as patent protection for algorithms and copyright issues for data. Financial institutions must clearly define the ownership and usage rights of intellectual property when using AI models and computing resources to avoid infringing on others' intellectual property.
The initiative of the Hong Kong University of Science and Technology to open AI models and computing resources in the policy declaration also needs to clarify the protection and usage rules of intellectual property within the legal framework to promote the reasonable use and innovative development of resources.
(3) Legal Responsibilities of Financial Regulatory Institutions
Hong Kong's financial regulatory institutions bear significant legal responsibilities in the application of AI in the financial market. On one hand, financial regulators should continuously review and update existing AI regulations and guidelines to ensure that laws and regulations align with technological developments. With the continuous advancement of AI technology, new legal issues and risks will continuously emerge, and financial regulators need to timely adjust and improve laws and regulations to provide strong legal guarantees for the healthy development of the financial market.
On the other hand, financial regulators should strengthen oversight of financial institutions' application of AI, ensuring that financial institutions comply with laws, regulations, and regulatory requirements. Financial regulators can supervise and inspect financial institutions' AI systems through on-site inspections and off-site monitoring, requiring timely rectifications for identified issues. Additionally, financial regulators can establish reporting mechanisms to encourage the public to report illegal or non-compliant behaviors of financial institutions, enhancing social supervision.

In summary, Hong Kong's regulatory framework in the fields of crypto assets and AI applications reflects its foresight and prudence as an international financial center. Through clear policy declarations and regulatory guidance, Hong Kong not only provides a clear path for the compliant development of virtual assets but also sets high standards for the responsible application of AI technology in the financial sector.
While financial institutions enjoy the conveniences and innovations brought by technology, they must also strictly adhere to relevant laws and regulations, ensuring the stability of the financial market and the protection of customers' rights.
In the future, we look forward to the continuous optimization of Hong Kong's regulatory framework with the advancement of technology and the development of the market, to adapt to new challenges and demands, further consolidating its position as a global financial innovation hub.
Final Three Thoughts
Thought One: Why Choose Bitcoin and Ethereum as Index Components?
The virtual currency market is diverse, but Bitcoin and Ethereum hold unique positions. Bitcoin, as the first virtual currency, has extremely high visibility and widespread recognition, playing a pioneering role in the development of cryptocurrencies. Ethereum, relying on its robust Ethereum blockchain platform, supports various functions such as smart contracts, playing an important role in the blockchain application field.
From a market perspective, the market capitalization of these two cryptocurrencies has long ranked at the forefront, with relatively high market liquidity. This gives them strong representativeness in price discovery and reflecting market trends. At the same time, the Hong Kong Securities and Futures Commission has conducted strict screening of crypto assets available for retail trading, and Bitcoin and Ethereum also meet compliance requirements, providing a basis for their inclusion in the virtual asset index.
Thought Two: Is the Timing for the Launch of the Crypto Asset Index Appropriate?
Hong Kong has been actively exploring innovation in the financial sector, particularly maintaining keen insight and action in fintech. As early as 2022, the Hong Kong government issued a policy declaration regarding the development of virtual assets in Hong Kong, clearly outlining the vision and guidelines for the industry's development, laying the policy foundation for subsequent developments.
Subsequently, the Hong Kong Securities and Futures Commission actively promoted related work, issuing licenses for cryptocurrency exchanges and fund companies, and successfully achieving the listing of Asia's first virtual asset ETFs in 2024. This series of measures indicates that Hong Kong has conducted systematic planning and adequate preparation for cryptocurrency trading.
In terms of regulation, the regulatory documents for cryptocurrency trading by the Hong Kong Securities and Futures Commission have long been finalized, providing solid legal assurance for the launch of the virtual asset index. With a certain accumulation of market experience and regulatory experience in the crypto asset field, launching the crypto asset index at this time is a natural step, not a rushed move.
Thought Three: What Are the Deep Reasons for Hong Kong's Launch of the Crypto Asset Index?
In the competition among global financial centers, Hong Kong faces challenges from cities such as Singapore. In recent years, Singapore has rapidly developed in asset management scale and financial innovation, taking the lead in the crypto asset field. Singapore's Payment Services Act provides strong support for fintech innovation, and its measures in virtual asset ETF trading have also attracted substantial funds and attention.
As a traditional financial center, Hong Kong cannot lag behind in emerging fields. The launch of the crypto asset index is an important measure for Hong Kong to actively respond to competition, aiming to enhance Hong Kong's competitiveness in financial innovation and fintech. The launch of the crypto asset index is not only an exploration of crypto assets but also an effort to attract more investors and funds to flow into Hong Kong, consolidating Hong Kong's position as an Asian financial center.

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