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Hong Kong's Financial Supervisory Authority Demands "a More Solid Footing" for Crypto

Christopher Hui originally learned about cryptocurrencies from some colleagues who ran investment funds and made purchases of virtual assets. In his current role as secretary for Financial Services and the Treasury of Hong Kong (FSTB), he is creating the sector's policy direction.

He asked a member of his team during Hong Kong FinTech Week in early November about whether he ought to purchase his first virtual asset. One of the few pilots the regulator is launching is the bureau's non-fungible token (NFT) offering. Other pilots include tokenizing green bonds and a central bank digital currency (CDBC), the e-HKD.

The industry did not anticipate the change in posture, even though it had been aware for some time that a regulatory framework was on the way. Top regulators showed there in large numbers to support the city's return as a crypto centre, with Hui standing out among them. Many of the booths and panels at FinTech Week dealt with the metaverse.

Hong Kong now has many regulators that deal with cryptocurrencies. Stablecoins are under investigation by the Hong Kong Monetary Authority, and enforcement is handled by the Securities and Futures Commission.

Hui's department, FSTB, establishes the more comprehensive approach to regulation. It appears to be putting cryptocurrency under financial regulation and opening up areas up for discussion, such allowing retail investors under the new regulatory framework.

Hui's prominence and his participation in panels at Hong Kong FinTech Week where he discussed cryptocurrency send a strong message that the city's regulators see it as a component of the city's economic future.

Hui echoed the opinions of other prominent members of Hong Kong's regulatory authorities who consider cryptocurrency to be a part of conventional finance. Hui said that he views cryptocurrency more as an investing tool than as an effort to break free from fiat money when asked what he thought of the fundamental principles of the technology.

In terms of its potential uses, he was cautiously enthusiastic. In an interview, he said: "Potentially, it is a transformation to how society and economy work," adding that "it's not built overnight."

His top priorities are the use cases: "My inclination is to see through these investments and look at what’s behind them, what’s underlying them."

He expressed his excitement at the tokenization of green bonds, which streamlines the sometimes complex issuing and investment procedure.

Green bonds totaling $10 billion have previously been issued by Hong Kong in a variety of currencies, including the US dollar, euro, and renminbi. The pilot will concentrate on institutions and the entire value chain, including asset servicing, secondary trading, and retention from issuance to settlement.

Hui added that there are many instances where technology may effectively address bottlenecks, using the initial public offering subscription period as an illustration.

It is common to draw comparisons between Singapore and Hong Kong and their rivalry for business. Hui views Hong Kong's "one country, two systems," which refers to the fact that the city is a part of China but has the ability to manage its own affairs, as its most distinctive quality. He mentioned a program that speeds up access to Chinese markets for Hong Kong businesses.

Officials frequently emphasize Hong Kong's function as a bridge between China and the rest of the globe. Given the restriction in China, if  Hong Kong is not performing this role when it comes to virtual assets, then what's its function? 

"We’re able to bring together investments globally," Hui said. "We can manage and also channel these investments in a well-regulated and also sustainable manner."

He emphasized Hong Kong's standing as a gateway to China and its connections to the international community.

Hui attributes this to a variety of elements, stating the "rule of law, regulation, and commercial modus operandi" of Hong Kong.

Hui declined to elaborate further on whether the recently established Hong Kong Monetary Fund would take into account investing in cryptocurrency businesses. "They are bound by their own mandates and policies," he said.

Companies are unsure about whether Hong Kong can establish its own cryptocurrency policy,  Hui insists that it is possible.

When asked if Beijing has provided the regulator with any assurances regarding cryptocurrencies in particular, Hui responded, "Iit is more business as usual because after all we are operating one country, two systems. We have our own regulatory systems, we have our own legal systems."

Eyes have been on the Party Congress taking place across the border during the past month, where Xi Jinping's third term was ratified. Stocks in China fell immediately after. Investor confidence has been impacted by political changes in Hong Kong.

Hui didn't, however, seem concerned. "Hong Kong is an international financial center, so basically our stock performance reflects overall sentiment ," Hui explained.  He said that market activities had been seamless. "There's no systemic risk presented"

Even if they are leaving China, he would welcome crypto firms. Hui declared, "Hong Kong is a very open place.  Whoever meets our law and requirements, they’re welcome"

Hui claimed that the "blocks are ready" to construct the ecosystem with the advent of the VASP regime and discussions. He described it as having a "more solid footing" and added, "We are more definitely clear in terms of where we stand."

Hong Kong said that it was seeking to reemerge as a crypto centre at the start of Fintech Week. The regulator stated that it was open to discussing the creation of an exchange-traded fund (ETF) for cryptocurrency futures and allowing authorized exchanges to cater to retail customers.

There were little signs of Hong Kong considering anything more than a professional investor-only environment up until a few months ago. It is forward-thinking, Hui stated. "We move with the market, we move with the industry, we are with them in the journey to mitigate risk, manage them and also grow this ecosystem."

Prior policy direction required all exchanges to get licenses while also prohibiting licensed platforms from providing services to retail traders. Currently, unlicensed platforms are primarily used by retail traders.

U.S. cryptocurrency ETFs, which most likely provide higher liquidity than Hong Kong ones would, are available to investors in Hong Kong. However, the announcements indicate that there are still further options.

A recurring trend in Hui's responses is that regulators are more open to discussion. He withheld additional details regarding any rules, standards, or requirements that regulators might have for retail investors. "We need to consult the market," he said.

Hong Kong will reportedly open to retail, but the srules, standards and timeline are still up in the air. He emphasized how crucial investor education is.

In a year of market unrest that saw the Terra fall, VC funds being liquidated, and jurisdictions like Singapore tightening regulation over cryptocurrency, Hong Kong is attempting to reinvent itself as a hub for the industry.

Regarding the timing, Hui added, "It doesn’t come out of nowhere."  He cited the knowledge Hong Kong had gained through implementing an opt-in system for virtual asset exchanges to obtain specific licenses allowing them to deal in securities and offer automated trading services, as well as fund managers who deal in virtual assets.

According to him, this crypto winter may have helped people become more astute about what works and what doesn't. "It’s the right time to take stock."



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