Lawyer Wu Wenqian joined OK in 2017 and may be the first overseas lawyer of OK. He joined Huobi in 2018 and began to help cryptocurrency companies to comply with the compliance path in Hong Kong in 2020. He can be regarded as one of the lawyers who knows the cryptocurrency history in Greater China and Hong Kong regulation best. This podcast basically talked about the questions and all hot issues about Hong Kong.
Please introduce your resume:
I joined OK in 2017 and was probably the first lawyer of the organization. At that time, I provided legal services to the OK Group in Hong Kong. Then, in 2018, I moved to Huobi Group, mainly responsible for compliance and overseas mergers and acquisitions, including some important overseas legal affairs. I was also involved in the acquisition of listed companies in Hong Kong. In 2020, I founded my own consulting company, and in 2022, I founded a venture capital company with several partners. In the same year, I also participated in the application for licenses No. 1, 4, and 9, and successfully obtained them, which enabled the company to legally conduct virtual currency-related business. In addition, I also worked as a consultant in a law firm, helping several companies apply for licenses and providing consulting services for different virtual currency projects.
Is the current licensing pace in Hong Kong normal?
On this point, OSL and Hashkey, two licenses that applied earlier, and another HK company that has entered the aip stage, all started the application process when they applied for the sandbox in 2018-2019. These companies applied relatively quickly due to the web3 announcement released by the Hong Kong government in October last year. The other applications were mainly based on the new VASP license approved in December last year. I think this issue should be viewed in stages. The application speed in 2018 and 2019 was relatively slow, mainly because the sandbox process required time for the SFC to understand and learn more about the operation of the industry. But in June this year, when the SFC had a certain degree of understanding of the industry, the new VASP license system was implemented. Therefore, future license applications are expected to be faster and smoother. Especially for those companies that already have operations in Hong Kong before June 6, they need to submit applications before March 1 next year in order to continue to operate. I expect that there will be more than ten, or even dozens of companies that submit applications before this deadline. Therefore, I think the Hong Kong government and the SFC are prepared for this and expect to process a large number of license applications. I believe that with the current preparation and process, the speed of applications will be significantly improved in the future.
What do you think about the current phenomenon that compliant exchanges only provide a small number of tokens to retail users?
In my opinion, this phenomenon is caused by a series of strict policies and conditions. First, any token that wants to be traded by retail users must have a liquidity history of at least 12 months. This is a basic requirement that ensures the stability and reliability of the token. Secondly, the token needs to be listed on at least two indexes, and these indexes cannot be limited to the field of virtual currencies, but also need to include some traditional indexes, such as Bloomberg. The existence of these conditions ensures that the tokens listed on Hong Kong compliant exchanges are strictly screened and certified.
However, the situation may be different in the future. There are already many institutions in Hong Kong and overseas preparing to carry out consultation work on indices. As these indices are established and improved, we can foresee that the types of tokens available for trading will increase in the future. This is not only one of the strategies of the SFC to protect retail investors, but also reflects the intention to gradually open up the market under the premise of ensuring safety. Of course, in view of the different security incidents that have occurred in Hong Kong in recent years, I think the SFC will be more inclined to protect retail investors, and may even sacrifice the speed of listing to ensure safety. Overall, although the market will gradually open up in the future, the process will be steady and cautious.
What do you think of the platform points launched by HashKey?
I think the HSK platform points launched by HashKey is a very compliant and clear path approach. As far as I know, HashKey issued HSK only after obtaining permission from the China Securities Regulatory Commission, which in itself reflects its determination to comply with regulations. The functions and uses of HSK are also regulated to a certain extent, which provides a good demonstration path for other currencies to be listed or for future exchanges to operate.
Specifically, this path first obtains approval from regulators, then conducts publicity and other related activities on the platform, and finally gradually allows listing and retail trading. This is not only the approach expected by the CSRC, but also provides regulators with ample time to understand the liquidity and functions of new currencies, ensuring that the interests of project parties, regulators, platforms, and users are balanced and protected. This robust and transparent approach is beneficial to the healthy development of the entire industry.
What are the highlights of Hong Kong’s policies this year?
First, I would like to talk about the issue of OTC transactions. OTC plays an important role in the Hong Kong market, especially observing that Hong Kong has been in the leading position in the global OTC transaction volume this year. Institutions such as OSL have made great contributions in this field. Hong Kong has been an important OTC flow center since 2013. OTC has a profound impact on the entire cryptocurrency circle, especially the inflow and outflow of funds. Hong Kong's contribution to the OTC market cannot be underestimated.
Talking about history, the Hong Kong government issued a statement on Bitcoin business around 2013, suggesting that some institutions could operate by obtaining an MSO license from the Customs. However, the Customs later stated that Bitcoin does not fall into the category of currency and institutions that purely engage in Bitcoin business do not need an MSO license. During this period, Hong Kong's attitude towards cryptocurrency regulation seemed quite vague until the SFC later established a clear regulatory direction. Therefore, although OTC may be mentioned in future regulation, I don't think it will be a focus in the short term.
On the contrary, if Hong Kong plans to become a web3 center, stablecoins may become a more concerned topic. HKMA has already released a document on stablecoins in 2020 or 2021, and mentioned that a more specific stablecoin regulatory framework may be introduced this year. As a key link between the virtual currency industry and the traditional financial industry, stablecoins are of great significance to the entire currency circle. If stablecoins can be effectively regulated, the demand for OTC may decrease accordingly.
In addition, regarding the issue of STO, if stablecoin regulation or licensing can be introduced, it will effectively connect the virtual currency ecosystem with traditional industries. For example, if a No. 1 brokerage firm can accept stablecoins, then settlement may be able to be carried out within the brokerage firm. This will greatly promote anti-money laundering supervision and may bring more financial innovations, such as lending, derivatives and other OTC market products. Therefore, the development of stablecoins may become the key to the integration of Hong Kong's cryptocurrency circle into traditional industries and rapid development. In general, although OTC remains an important part of the Hong Kong market, the construction and supervision of stablecoins and their related ecosystems may become a more important focus in future regulatory policies.
What impact will the collapse of non-compliant exchanges in Hong Kong have on Hong Kong’s regulatory policies?
At a high level, recent exchanges that have collapsed, such as JPex, have already attracted investigations from the police and the SFC. Interestingly, when talking to friends outside the Hong Kong cryptocurrency community, most of them are not familiar with these platforms, which suggests that the impact may be mainly limited to Hong Kong. While these events have a significant impact on retail investors, regulators, the Hong Kong government, and the perception of the international industry, I believe that global compliant exchanges have formed an interconnected network, and compliance has become an inevitable trend.
The Hong Kong government’s virtual currency and web3 declaration announced last year has laid out a clear roadmap, including ETF exchange licenses and policies such as the possible introduction of stablecoins this year. Therefore, whatever happens to exchanges such as JPex is unlikely to have a fundamental impact on the overall policy of the Hong Kong government. With the implementation of the licensing system, the number of problematic exchanges is expected to decrease. Therefore, both within the industry and at the government level, concerns about these unexpected events should be limited because the future strategy is already clear.
Will the Hong Kong Stock Exchange attract some blockchain companies to go public in the future?
HKEX is in a very special position, it has to create profits for shareholders, but also has a certain regulatory role, responsible for supervising all listed companies in Hong Kong. Therefore, HKEX must be extremely careful in handling matters. In my experience during the Huobi era, communication with HKEX and announcements were always very cautious. As time goes by, HKEX and the SFC have gradually deepened their understanding and awareness of the blockchain industry, so I believe they may be more open to virtual currency-related policies in the future. Although the recent problems of some exchanges may lead to a slowdown in the pace of policy advancement, if the Hong Kong government does intend to build a web3 center, HKEX will undoubtedly be involved. As more brokerages and licensed companies enter this industry, HKEX will also participate more actively in this field.
What are the advantages and disadvantages of Hong Kong’s regulatory policies compared to Singapore?
Hong Kong and Singapore each have their own characteristics in terms of cryptocurrency regulation and development, and it is not easy to directly compare the two. Hong Kong has traditionally placed more emphasis on capital markets, while Singapore may be more inclined towards conservative or fixed-income investments. Therefore, for currency bond funds or financing development, Hong Kong may be a better choice because of its long financing history and numerous investment institutions.
In terms of regulatory experience, Singapore is indeed two to three years ahead of Hong Kong, which gives local companies an earlier start and more experience accumulation. This early experience may give Singapore a slight advantage in policy receptivity and corporate adaptability.
However, recent events seem to suggest that Hong Kong may have an advantage in some respects. Especially in the past year, Hong Kong's handling of cryptocurrency issues has demonstrated its determination and aggressiveness. For example, the Hong Kong Monetary Authority asked major banks why they did not allow virtual currency companies to open accounts, a proactive move rarely seen globally. The Hong Kong government clearly wants to build Hong Kong into a web3 center and has adopted a whole-of-government collaborative strategy. In contrast, Singapore’s attitude may have become more conservative after the FTX incident, and its previously rapid pace of development has slowed down.
Nevertheless, both Hong Kong and Singapore are good locations for the development of the cryptocurrency circle, especially in the context of regulatory uncertainty in the United States. Asia will undoubtedly become a hot spot for the development of virtual currencies. I personally tend to have confidence in Hong Kong because the Hong Kong government has formulated a clear roadmap and has shown a firm determination to develop and a positive planning attitude.
On a comprehensive basis, although Hong Kong and Singapore each have their own advantages, Hong Kong may have a more obvious performance in terms of initiative, planning and government determination, which may enable it to have a place in the future development of virtual currencies.