Produced by | Bailu Living Room
Author: Bai Lu, Bo Wen
The Hong Kong virtual asset market in 2023 will be full of highlights.
From 2018, when Hong Kong was only vague about the crypto industry, to recent years, facing the covetous eyes of Singapore, a strong financial rival in East Asia and the Chinese self-deprecating as "crypto Jews", Hong Kong announced in October 2022 that it would "go all in" to "compete for a global virtual asset center", and the Chinese-speaking world was skeptical; until the Wanxiang Carnival Summit in Hong Kong in April 10, it was bustling with people and a mixed carnival began.
After June 2023, a series of intensive virtual asset policies were implemented at a speed beyond expectations, from exchange licensing to new STO regulations, licensed funds and ETFs, and stablecoin regulations, which created a world-leading favorable regulatory environment. In the second half of the year, Hong Kong virtual asset exchanges, securities firms, asset management funds, venture capital institutions, and OTC merchants gradually started their businesses. Although there was a lack of infrastructure in the early stage and some companies suffered losses, all businesses are now up and running.
On the other hand, the traditional financial market in Hong Kong is in a sluggish state and self-mocking about the “relics of Hong Kong’s financial center.” The emerging market of virtual assets may become a shot in the arm for the Hong Kong financial market, attracting traditional financial institutions in Hong Kong and the mainland to rush in.
By 2023, we believe that Hong Kong has basically established a firm foothold in the global virtual asset market competition., has created a world-leading favorable regulatory environment. With the next round of crypto bull market and the US interest rate cut cycle, Hong Kong will be based in East Asia and radiate the world, and have the opportunity to lead the global crypto market.
The dawn has come
At this moment, Bailu Reception Room will lead everyone to review the policy context of virtual assets in Hong Kong in 2023, deeply understand the compliance process from the financial regulatory side, and be prepared on the basis of safety and compliance to better seize the market dividends in the next two years and in the longer term and on a larger scale.
Hong Kong virtual asset policy timeline:
In May 2021, the Treasury Department of the Hong Kong Monetary Authority launched a public consultation on the “Legislative Proposals to Strengthen the Regulation of Combating Money Laundering and Terrorist Financing in Hong Kong” to discuss the licensing system for virtual asset service providers;
On October 2022, 10, the Policy Statement on the Development of Virtual Assets in Hong Kong was released;
On December 2022, 12, the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 8 was officially passed by the Legislative Council, and virtual asset service providers were officially regulated by Hong Kong law;
On January 2023, 1, the Hong Kong Monetary Authority released a consultation summary on the discussion paper on virtual assets and stablecoins;
On May 2023, 5, the HKMA’s official website announced the results of the public consultation on the “Guidelines on Combating Money Laundering and Terrorist Financing”;
2023 year 5 month 31 day,The Hong Kong Securities and Futures Commission's official website publishedCircular on the implementation of a new licensing regime specifically for virtual asset trading platforms;
2023 year 6 month 1 day,A new licensing system for virtual asset trading platforms takes effect;
2023 year 10 month 20 day,The Joint Circular on Virtual Asset-Related Activities of Intermediaries was issued, allowing securities firms and banks to conduct virtual asset retail business with a license;
2023 year 11 month 2 day,The Circular on Intermediaries Engaging in Tokenized Securities-Related Activities was issued, and STO does not require mandatory professional investors; on the same day.The circular on tokenized SFC-approved investment products was released;
On December 2023, 12, the Hong Kong Securities and Futures Commission’s official website published the “Notice on Funds Involving Virtual Assets Approved by the Securities and Futures Commission”, preparing to accept applications for virtual asset spot ETFs; on the same day,The Joint Circular on Virtual Asset-Related Activities of Intermediaries was updated to clarify the distribution regulations including virtual asset spot ETFs;
On December 2023, 12, the Hong Kong Financial Secretary and the Hong Kong Monetary Authority jointly issued a public consultation document to collect suggestions on new legislation on stablecoins.
Virtual asset trading platform licensing system implemented
What is important for Hong Kong in 2023 is the launch of a compliant virtual asset trading platform.After many years of collaboration, the Hong Kong Treasury, the HKMA and the Securities and Futures Commission communicated with the industry many times and finally implemented a licensing system for virtual asset trading platforms.
In May 2021, the Treasury Department of the Hong Kong Monetary Authority launched a public consultation on the "Legislative Proposals to Strengthen Anti-Money Laundering and Terrorist Financing in Hong Kong", focusing on the "Proposals to Establish a Licensing System for Virtual Asset Service Providers", affirming the legislative need for a licensing system, and clarifying the scope of coverage, licensing conditions and regulatory methods.
On December 2022, 12, the Legislative Council formally passed the new legislation bill on virtual assets. Hong Kong officially regulates virtual assets and has a clear definition of virtual assets.
On May 2023, 5, the Hong Kong Securities and Futures Commission’s official website released theCircular on the implementation of a new licensing regime specifically for virtual asset trading platformsThe circular states:A new licensing regime for central virtual asset trading platforms under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance will take effect on June 2023, 6. Under the new regime, central virtual asset trading platforms operating in Hong Kong will be required to apply for a license from the Securities and Futures Commission under the Securities and Futures Ordinance and/or the Anti-Money Laundering Ordinance.
At the same time, the circular announced the latest regulatory requirements, including the "Guidelines for Virtual Asset Trading Platform Operators", "Guidelines on Combating Money Laundering and Terrorist Financing", "Guidelines issued by the Securities and Futures Commission on Preventing Money Laundering and Terrorist Financing Applicable to Licensed Corporations and Associated Entities of Virtual Asset Service Providers Licensed by the SFC", and "Licensing Manual for Virtual Asset Trading Platform Operators".
Since then, the licensing system has been officially implemented and the battle for licensed trading platforms in Hong Kong has officially begun.
OSL and Hashkey have been in the planning stage for the longest time. On August 2023, 8, the two platforms announced on the same day that they had obtained approval from the Hong Kong Securities Regulatory Commission to provide virtual asset trading services to retail customers, marking the beginning of the retail investor era in Hong Kong.
As of press time, in addition to the two licensed exchanges,A total of 11 institutions have applied for virtual asset exchange licensesIt also indicates that Hong Kong’s virtual asset market still has huge potential and opportunities waiting for investors to discover.
Trillion-dollar traditional securities and banking retail firms enter the market
On October 2023, 10, the Hong Kong Securities and Futures Commission’s official website announced the “Joint Circular on Virtual Asset-Related Activities of Intermediaries”, igniting market enthusiasm again.
通函共在5个方面对香港虚拟资产相关业务做出了新的说明。包括：分销虚拟资产相关产品（需持虚拟资产1号牌）、 提供虚拟资产交易服务（需持虚拟资产7号牌）、就虚拟资产提供资产管理服务（需持虚拟资产9号牌）、就虚拟资产提供意见（需持虚拟资产4号牌）和具体实施方法。
According to the previous law, retail customer business can only be conducted by compliant exchanges. After the update of this circular,If securities firms or banks hold virtual asset licenses No. 1 and No. 4, they can conduct virtual asset and security token STO business for C-end retail users by upgrading their virtual asset licenses.It also clearly states that digital asset custody can be managed by traditional financial institutions such as banks.
This move will pave the way for the further expansion of Hong Kong’s virtual asset market.needlecardiac.The transaction fees of licensed and compliant virtual asset trading platforms lack competitive advantages. In addition, the virtual asset market is volatile, the learning cost is extremely high, and the growth rate of retail users has always been slow.After the circular is released, the exposure of traditional banks and securities firms will be opened up, and more traditional investors who are interested in making arrangements can directly invest in virtual assets through traditional institutions, which may bring trillions of dollars of market growth.
As soon as the circular was issued, the effect was remarkable. Taking Victory Securities, the first Hong Kong local brokerage to start virtual asset retail business, as an example, as of December 2023, 12,Data from Victory Securities executive director Chen Peiquan shows that since the company responded to the policy and launched virtual asset trading services, its average monthly turnover has reached US$1000 million, and its virtual asset business has made a profit, of which about XNUMX% is invested in Bitcoin.80% of its overall virtual asset investmentWith the participation of more traditional securities firms, the growth rate of virtual asset-related customers will continue to double in 2024.
For more details, please refer to:Trillion-dollar traditional brokerages and banks enter the retail market! Interpretation of Hong Kong's new version of the virtual asset intermediary circular
Big Adjustment after Four Years: STO
No need to enforce “professional investors only”
202311月2日，香港证监会官网发布《有关中介人从事代币化证券相关活动的通函》，取代了于2019年3月29日发表的《有关证券型代币发行的声明》。
The circular provides important clarifications on two important issues: whether tokenized securities are complex products and whether restrictions on professional investors should be imposed. According to the circular:Tokenized securities no longer need to be subject to the “professional investors only” restrictionAt the same time, new explanations were given to relevant terms, the nature of tokenized securities, new risks caused by tokenization, and factors that must be considered when engaging in activities related to tokenized securities.
On the same day, the Hong Kong Securities and Futures Commission’s official website released a circular on tokenized SFC-approved investment products., setting out the SFC’s consideration of:Provisions allowing the tokenisation of investment products offered to the public in Hong Kong authorised under Part IV of the Securities and Futures Ordinance.It also focuses on the primary market and makes requirements on token management, public disclosure, intermediaries, and employee capabilities.
It has been 4 years since the last policy change. With this circular update, Hong Kong has prepared the soil for financial innovation based on STO to take root. The market response was also quick. Institutions such as Gaopu CSpro, Harvest Fund, and OSL have begun to prepare corresponding products.
From the promotion of the digital Hong Kong dollar to the blockchain issuance of the Hong Kong government's green bonds; the continuous implementation of various promotion trials, to the introduction of new STO regulations in 2023, the Hong Kong government's attitude has been very clear:Hong Kong will fully support all types of traditional securities, as well as financial innovations such as the tokenization of physical assets including RWA; the Hong Kong government also supports opening up STO adoption to the market and to more people, leading Hong Kong to truly embark on the path of building a world Web3.0 financial center.
For relevant contents of the circular, please refer to:Big adjustment after four years! Hong Kong Securities and Futures Commission: STO does not need to be restricted to professional investors only;Hong Kong STO New Regulations: Circular on Tokenized SFC-Approved Investment Products
Bitcoin/Ethereum Spot ETF Approved Soon
2023On December 12, the Hong Kong Securities and Futures Commission’s official website published a new version of the “Notice on Funds Involving Virtual Assets Approved by the Securities and Futures Commission”, replacing the "Virtual Asset Futures Exchange Traded Fund Circular" issued on October 2022, 10.
The circular pointed out:The Hong Kong Securities and Futures Commission is ready to accept applications for virtual asset spot ETFs.For virtual assets (such as Bitcoin and Ethereum) that are allowed to be traded on licensed trading platforms, licensed institutions can issue and manage corresponding spot ETFs, and subscribe and redeem them in kind and in cash on licensed trading platforms or recognized financial institutions.
On the same day, the Hong Kong Securities and Futures Commission’s official website released a new version of the “Joint Circular on Virtual Asset-Related Activities of Intermediaries”, replacing"Joint Circular on Virtual Asset-Related Activities of Intermediaries" dated October 2023, 10.
The circular clearly states:The SFC has approved virtual asset futures ETFs and is ready to accept applications for approval of other funds involving virtual assets, including virtual asset spot ETFs and virtual asset spot ETFs.In response to the above-mentioned latest market developments, the regulator has updated the relevant policies, including clearly setting out the requirements applicable to intermediaries when distributing virtual asset-related products, and setting out the ethical standards that intermediaries should meet when distributing virtual asset funds authorized by the SFC.
The legality of virtual assets, including Bitcoin and Ethereum, has always been the biggest concern of traditional financial funds. Introducing traditional capital into the virtual asset market in a compliant manner has also become the most feasible way to introduce capital and open up incremental markets.In 2023, the mere possibility of the US SEC approving a Bitcoin spot ETF has already brought about a huge global market response, bringing the bull market back to the market that had been silent for two years; this time, Hong Kong has followed the pace of the United States at the fastest speed.
On January 2024, 1, Livio Weng, Chief Operating Officer of HashKey Group, revealed in an exclusive interview with Caixin that as of January 10, about ten fund companies were preparing to launch virtual asset spot ETFs in Hong Kong, and seven or eight of them were already in the actual promotion stage.The preparation phase is over and Hong Kong is on its way to becoming the first market in Asia to allow the listing of virtual asset spot ETFs.
For relevant contents of the circular, please refer to:New SFC regulations are introduced, Hong Kong Bitcoin/Ethereum spot ETF is about to be approved!
New Stablecoin Legislation is Coming
On January 2023, 1, the HKMA summarized the discussion paper on stablecoins released in 31, and respondents generally supported a risk-based and flexible approach to regulating stablecoins.
On December 2023, 12, the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) jointly issued a public consultation document, collecting opinions on legislative proposals on regulating stablecoin issuers. Another core piece of the virtual asset market regulation is expected to be implemented in 2024.
The consultation document covers the Hong Kong government’s latest measures and legislative proposals on the regulatory approach to stablecoin issuance, including:Stablecoin regulation covers many aspects, including scope, legislative methods, regulatory framework for fiat stablecoin issuers, custody and purchase services for fiat stablecoins, regulatory powers, violation regulations and sanctions, appeals, and transitional measures.Solicit opinions from the SAR in all aspects to promote the implementation of stablecoin regulatory laws.
The document highlights that the Hong Kong government拟议Introducing new legislation to implement a licensing regime for fiat stablecoin issuers.The elements include:Defines a fiat stablecoin as a cryptographically protected digital form of value that claims or appears to maintain a stable value relative to one or more fiat currencies and possesses other relevant characteristics; andRequire all issuers that issue fiat currency stablecoins in Hong Kong, issue currencies that claim to be or appear to be Hong Kong dollar stablecoins, or actively promote their fiat currency stablecoin issuance to the Hong Kong public to obtain a license issued by the Monetary Authority. The relevant licensing criteria and conditions are explained in detail in the document.
Stablecoins have always been one of the most profitable businesses in the crypto industry and a means to grasp the lifeline of the virtual asset industry.Tether's revenue of $2023 billion in the first quarter of 15 and its market value, which is still rising and breaking new highs, have proved to the global market that a prosperous virtual asset market cannot be separated from the cornerstone of stablecoins. The situation in which the US dollar stablecoin dominates needs to be broken. In 2024, we look forward to Hong Kong implementing the stablecoin regulatory bill, and we also look forward to the achievements of Yuanbi, Hashkey, ZhongAn Bank and other institutions to consolidate the Hong Kong stablecoin market.
The full consultation document can be found at:New stablecoin legislation is coming! A look at the Hong Kong Treasury Department & HKMA’s legislative proposals
Hong Kong 2024: The dawn is coming, and the time is coming
For the Hong Kong virtual asset market, 2023 is full of hope. The Hong Kong government has taken the lead in consulting and communicating with various institutions, and with an unprecedented positive attitude, has created the most favorable virtual asset regulatory policy in the world. In 2024, it will be various institutions and teams that will take over, and more technology and business innovation will be needed to create more market value.
Hong Kong, the Pearl of the Orient, has risen; what awaits us will be more extraordinary and glorious chapters.