Hong Kong is aiming to position itself as a leading digital asset hub in the Asia-Pacific region by supporting the development of a favorable regulatory framework for the crypto industry.
Recently, the country’s financial watchdog – the Securities and Futures Commission (SCF) – conducted and completed a thorough five-month review of all crypto platforms. Thus far, three brokers have received licenses to legally provide crypto trading services in the country while another fourteen have submitted applications that are currently under review.
The latest institution that joined this list was the well-reputed Hong Kong Virtual Asset Exchange Limited, which received its license to operate a virtual asset trading platform on October 3
During the Hong Kong Fintech Week, an event that brings together professionals, leaders, and regulators from this industry, Eric Yip, the head of the intermediaries department at the SFC, commented that the agency will be publishing a finalized list before the end of 2024 with all of the platforms who will receive licenses in replacement of provisional permits.
Also read: How to Buy Cryptocurrency — The Only Guide You’ll Need
Meanwhile, these companies will have to submit themselves to a final review from a third-party auditing firm to ensure that they meet the highest operational standards before obtaining an unrestricted license.
The Secretary of Finance for Hong Kong, Paul Chan, expressed his confidence that the licensing process will continue to advance as the country is committed to fostering a secure and adequately regulated environment for crypto companies to thrive.
“We expect more licenses will be issued in the next couple of months,” Chan commented during the conference.
Hong Kong Eyes Crypto Tax Break
One of the most exciting announcements that came as a part of Hong Kong’s effort to court the crypto industry was a plan to give crypto investors a tax break. This could help drive crypto adoption in Hong Kong substantially and innovation is surely to follow.
Christopher Hui, the Secretary for Financial Services and the Treasury, revealed that the tax break law will be proposed sometime this year.
Hong Kong Took its First Steps to Regulate Stablecoins Last Year
The Hong Kong Monetary Authority (HKMA) has made substantial progress in developing a comprehensive stablecoin regulatory framework, starting with the launch of a stablecoin issuer sandbox in March 2023.
Following an extensive consultation with over 100 stakeholders, the HKMA and Financial Services and Treasury Bureau (FSTB) outlined a regulatory regime focused on decentralized ledger-based assets that covered both single and multiple currency-referenced stablecoins.
The framework requires issuers to maintain full reserve backing, implement robust risk management controls, and comply with strict AML/CFT requirements. Alongside these regulations, the HKMA’s Project Ensemble represents a significant advancement in financial asset tokenization and introduced a wholesale CBDC for interbank settlement of tokenized deposits.
The project has already demonstrated its practical applications through the tokenization of electronic bills of lading.
Project Ensemble evidences Hong Kong’s robust commitment to integrating blockchain technology into its financial system. The HKMA expects to introduce formal stablecoin legislation by year-end to establish a clear regulatory foundation for issuers and operators in this space.
HKEX Will Launch Virtual Assets Index in November
The country has also extended its reach in this particular market beyond oversight as it aims to implement favorable taxation rules to attract investments to the country and foster the market’s growth.
Christopher Hui, Secretary for Financial Services and the Treasury, shared the government’s plans to provide tax incentives for crypto investments. This move expands on the exemptions that have already been extended to the sector for unified funds and family-owned investment holding vehicles.
“Hopefully, by expanding the availability of tax concessions to this wider scope of assets eligible under our fund regime and our family office regime, we will be able to add that extra impetus and pull to this [Hong Kong] market on their development front,” Hui commented during his Fintech Week intervention.
The government appears to be catering to a growing demographic of young investors who have been lured to the crypto sector amid the promising returns that the market has produced in the past 14 years or so.
In contrast, traditional stock traders are 40-year-old individuals who seem to be skeptical of this market’s appeal or credibility.
Virtual asset transactions in Hong Kong have grown rapidly amid the success of its market development strategy.
On Sunday, the most prominent financial market in the country, the Hong Kong Exchanges and Clearing Limited (HKEX), announced that it will launch a Virtual Asset Index Series for Bitcoin and Ether that will trade during Asia-Pacific time zones as the popularity of digital assets continues to rise.
“By offering transparent and reliable real-time benchmarks, we seek to enable investors to make informed investment decisions, which will in turn support the development of the virtual asset ecosystem and reinforce Hong Kong’s role as an international financial center,” commented the head of HKEX, Bonnie Y Chan.
“Same Risks, Same Rules” is Hong Kong’s Approach to Regulate Nascent Crypto Institutions
Hong Kong’s forward-looking regulatory agenda includes several key developments planned through 2025. The SFC will establish a consultative panel with authorized exchanges during the first few months of 2025 to deepen their cooperation and help these companies thrive and comply with these recently enacted regulations.
The regulatory roadmap also includes a framework for crypto-focused OTC trading desks and custodians. A second consultation concerning digital asset custody activities is scheduled to take place next year.
The SFC maintains a “same risks, same rules” approach while acknowledging the need for regulatory flexibility to avoid classifying apples as pears – an issue that has resulted in conflict between regulators and crypto companies in other jurisdictions like the United States.
Also read: Mastercard Launches New Self-Custodial Crypto Debit Card
This balance is crucial for creating an environment where regulated entities can operate feasible business models while ensuring appropriate investor protections. In the right environment, crypto can thrive and help boost a nation’s economy and quality of living.
The implementation of Hong Kong’s novel cryptocurrency regulatory framework has produced a positive market response as trading platforms have been actively engaging in the licensing process and working to meet regulatory requirements.
The phased approach to licensing, beginning with restricted operations and progressing to full operational capacity, aims to provide clarity and structure to market participants.
The stablecoin issuer sandbox has attracted participation from diverse entities, including JINGDONG Coinlink Technology Hong Kong Limited, RD InnoTech Limited, and collaborations between established institutions like Standard Chartered Bank (Hong Kong) Limited, Animoca Brands Limited, and Hong Kong Telecommunications (HKT) Limited.
The success of these measures will be crucial to propelling the country as a leading jurisdiction for digital asset innovation and trading in the Asia-Pacific region.