On October 31, on the launch of this 12 months’s FinTech Week in Hong Kong, the Monetary Providers and Treasury Bureau (“FSTB”) issued a coverage assertion outlining its imaginative and prescient for creating the digital property (“VA”) sector right here and outlined a number of new initiatives aimed toward “selling sustainable and accountable growth of the sector”.
Earlier this 12 months (please click on right here), the Hong Kong authorities laid in depth groundwork for a VA regulatory regime which started with the SFC and HKMA collectively issuing a steerage round for all native intermediaries regarding the distribution of VA and provision of providers by digital asset service suppliers (“VASPs”) in Hong Kong. Then, in June, the federal government put ahead new laws for a compulsory licensing and regulatory regime for all VASPs in Hong Kong.
Underneath this new regime, which takes impact on 1 March 2023, VAs which fall inside Hong Kong’s statutory definition of securities or futures contracts can solely be traded on crypto exchanges operated by intermediaries which have been licensed by the SFC as VASPs. Intermediaries that distribute, cope with or advise on VAs additionally should be licensed and adjust to current SFC rules. And, in the interim, licensed VASPs are solely permitted to supply such providers to skilled buyers.
The FTSB’s coverage assertion acknowledges the numerous potential of VAs and proposes a number of new initiatives that the Hong Kong authorities hopes will cement Hong Kong’s standing as a world cryptocurrency hub.
- Firstly, the SFC will conduct public consultations on modifications that will permit retail buyers to commerce in VA, presumably by way of a brand new class of trade traded funds. With out such modifications, retail buyers will solely have the ability to take action by way of abroad exchanges past the regulatory oversight of Hong Kong regulators.
- Secondly, recognizing that Hong Kong’s hidebound authorized system doesn’t but recognise both good contracts or tokenised property, the Hong Kong authorities will undertake a evaluation of current legal guidelines with a view to amending them so each of those will be correctly regulated. Good contracts are merely packages saved on a blockchain that function like an algorithm when predetermined circumstances are met. They’re seen as a doable substitute for typical contracts in particular business situations. Tokenised property are digital tokens created on a blockchain which may characterize both digital or bodily property. They characterize a brand new type of possession which may bolster each accessibility and liquidity of property possession.
- Thirdly, the HKMA will comply with up its January 2022 dialogue paper on increasing the regulatory framework to cowl payment-related stablecoins (i.e. cryptocurrency the worth of which is pegged to fiat foreign money or another asset).
- Lastly, over the approaching months, the Hong Kong authorities plans to launch pilot initiatives to discover proof-of-concept for doable introduction of tokenised ‘Inexperienced bonds’ that might be issued by the Hong Kong authorities and an e-HKD akin to the Digital Yuan utilized in mainland China.
These are unquestionably formidable proposals that will go a protracted method to placing Hong Kong forward of Singapore because the preeminent cryptocurrency centre of Asia. Within the meantime, intermediaries that supply regulated cryptocurrency providers have till 1 March 2023 to make all needed modifications to make sure they’re totally compliant when the brand new rules go into impact on.
