Hong Kong is preparing a series of regulatory reforms to make the city more attractive to companies in the cryptocurrency and blockchain industries, after losing businesses to rival Singapore amid concerns that China’s ban on crypto trading would finally reach the city.
Elizabeth Wong, a senior official at Hong Kong’s Securities and Futures Commission, or SFC, said the city has a different crypto policy stance from that of mainland China, and it will not be affected by the general crypto ban on the mainland not.
“Hong Kong has one country, two systems principle,” Wong said at the InvestHK conference in the city on Monday. “This is a constitutional principle that forms the basic foundation for Hong Kong’s financial markets,” said the director of licensing and head of the fintech unit of the SFC.
Hong Kong did initially attract some of the world’s largest crypto exchanges, such as FTX, which is run by billionaire Sam Bankman-Fried. But Bankman-Fried moved the FTX headquarters from the city to the Bahamas in 2021, a move followed by the Crypto.com exchange moving to Singapore as China’s ban on digital asset trading sparked concerns that Hong Kong could follow.
Wong said on Monday that Hong Kong regulators initially took a “cautious” approach to the digital asset industry, such as banning retail investments on centralized crypto exchanges within the city.
“It might be a good time to really think carefully about whether we will continue with this professional investor-only requirement,” Wong said. SFC has already lifted some restrictions on retail investors, allowing service providers to sell them some virtual asset-related derivative products from January, Wong noted.
Additionally, an anti-money laundering bill introduced to Hong Kong’s Legislative Council could introduce a new licensing regime for digital assets if passed. “We hope that this regulatory framework can enable the industry to have an orderly and sustainable development while balancing investor protection,” Wong said.
To gain ground?
Hong Kong lost out to rival Singapore as cryptocurrency exchanges such as Crypto.com and Huobi moved to the city-state, even as the Monetary Authority of Singapore warned the public about the high risks of crypto-investing and some advertising by exchanges prohibited.
But at the same time, Singapore has declared its intention to become a web3 and blockchain-based hub for the financial industry.
Hong Kong’s apparent shift on crypto regulations may be an attempt to stem the loss of business to its rival financial hub Singapore, said Anna Liu, head of legal at Asian end-to-end digital asset financial services group Hashkey Capital.
“Singapore has pushed the development of the crypto industry since 2019 and I don’t think they will lose the advantage in the short term,” Liu said. However, both jurisdictions have their own strengths, and Hong Kong’s move to a more Singapore-like stance will increase its global competitiveness and likely draw back some web3 companies, she added.
An updated policy statement on cryptocurrencies is also being released during Hong Kong’s Fintech Week, which starts on October 31, according to a blog published by Hong Kong’s Financial Secretary Paul Chan on Sunday.
The statement will cover the city’s policy stance and regulations on virtual assets to provide a “vision to develop Hong Kong into an international virtual asset hub,” according to the blog.
“We do see a huge opportunity for Hong Kong to regain its position as the center of virtual assets and web 3, given a clear legal and regulatory framework,” said Victor Yim, head of fintech at local incubation hub Cyberport. , said at the Monday InvestHK conference.
Cyberport is fully owned by the local government, with around half of the city’s blockchain technology companies and 72% of digital asset startups serving as members.
Brian Chan, investment director at Venture Smart Asia Hong Kong, was also hitting the town at InvestHK. “As a gateway between China and the West, Hong Kong is very well positioned for us to acquire talented people and to find high-quality developers to work with,” he said.
The government can further support the web3 industry and attract talent through more clarity and transparency on regulation, Chan added. He said Hong Kong’s web3 industry would benefit from integration with the city’s financial market, which boasts the world’s seventh-largest stock exchange.