In its 2024 report, the People’s Bank of China stressed that Hong Kong is taking an active approach to granting crypto-related licenses, highlighting the need for regulatory measures that can facilitate the use of digital assets within the traditional financial system.
The People’s Bank of China (PBOC) has released its annual report on “China’s Financial Stability (2024),” highlighting the measures the country has taken to support its financial stability and economic progress over the past year, with a large portion devoted to global crypto-related regulations, with a clear focus on Hong Kong’s comprehensive approach to crypto licensing.
According to the report, China's GDP will exceed 126 trillion yuan (about $17.79 trillion) in 2023, an increase of 5.2% compared to last year.
This growth was driven primarily by the strong performance of the technology, export and renewable energy sectors, which saw significant investment and innovation throughout the year. The report stressed the importance of financial stability as a critical factor in achieving economic goals, and detailed measures taken to mitigate risks related to various sectors such as real estate and banking, but acknowledged the growing influence of digital assets in the global financial system and Hong Kong’s role as a test bed for new crypto policies.
Hong Kong's regulatory approach to crypto and whether it could influence China's stance on it
According to excerpts from the report, Hong Kong’s dual licensing regime for managing digital assets was one of the highlights of the PBOC report; given the Chinese government’s complete control over crypto-related activities within the mainland, Hong Kong has adopted regulatory frameworks to facilitate the integration of virtual (digital) assets into its financial system.
However, the evolving nature of crypto markets requires constant regulatory changes, putting pressure on policymakers to strike a balance between encouraging innovation and protecting investors.
The report also detailed Hong Kong’s dual approach, which classifies digital assets into two categories based on whether they are securities or not, each subject to separate legislative frameworks: “securities” are subject to securities and futures laws, while “non-securities” are subject to anti-money laundering laws.
According to the report’s vision, this dual regulation aims to balance mitigating the risks associated with cryptocurrency trading and encouraging innovations in the fintech sector. Major banking institutions, including HSBC and Standard Chartered, have been obligated to raise their regulatory compliance standards to include crypto platforms, in order to ensure that traditional banking practices are in line with emerging digital markets.
The report also suggests that Hong Kong’s approach to licensing could serve as a model for broader financial reforms in China, potentially influencing future political shifts on the mainland.
Global Crypto Trends and China’s Cautious Approach
The People’s Bank of China report also highlights global crypto trends, with particular emphasis on increased regulatory scrutiny following the volatility of crypto markets in 2022. Despite a rebound in 2023 and a global total value exceeding $3.9 trillion this year, Chinese regulators remain cautious about the risks digital assets may pose to the country’s financial system.
On the other hand, the report pointed out several concerns, including the potential drain of traditional financial market investments by crypto markets, market manipulation practices, and weak investor protection within decentralized finance (DeFi) systems. The report also highlighted the efforts of international bodies - such as the Financial Stability Board (FSB) and the International Monetary Fund (IMF) - to develop a unified regulatory framework for digital assets.
The Chinese central bank report also emphasized - in particular - the importance of international cooperation in addressing the risks related to digital currencies, noting in this regard that the Financial Stability Board established an international regulatory framework for digital assets in July 2023. This framework emphasizes the principle that “the same activities relate to the same risks and therefore require similar regulatory oversight,” calling for the adoption of uniform regulatory standards across different markets.
Hong Kong recently pledged to implement the Digital Asset Reporting Framework (CARF) by 2026, in order to enhance international tax transparency and tackle crypto-related tax evasion internationally.
Finally, the CARF framework, which was put forward by the OECD in 2023, is expected to extend the scope of the current Common Reporting Standard (CRS) to digital assets, requiring different jurisdictions to automatically exchange information; the first exchange of information is scheduled to begin in 2028 with the launch of agreements on the international exchange of information.