Hong Kong's Web3 Hub Expansion

Christopher Hui, the Secretary of Hong Kong’s Financial Services and the Treasury, announced plans to issue additional policy papers and circulars on tokenised assets, stablecoins, and cryptocurrency trading during the Hong Kong Fintech Week.

Despite recent crackdowns on JPEX crypto exchange, during his keynote address at Hong Kong Fintech Week on 2 November, Christopher Hui, emphasised that the government remains committed to fostering web3 innovation.

Christopher Hui said in his address:

“We’ve been asked many times whether JPEX will affect our determination to grow the Web3 market — the answer is a clear ‘no.’”

Hui emphasised the imminent release of circulars by the Securities and Futures Commission (SFC) on tokenised securities-related activities and SFC-authorised investment products' tokenisation.

Efforts are also underway to extend the regulatory scope to cover the trading of virtual assets outside conventional trading platforms.

Tokenisation Efforts

Hong Kong Monetary Authority (HKMA) and the Financial Services and the Treasury Bureau will jointly consult on the regulatory framework for stablecoin issuers.

Eddie Yue indicated that the government is actively engaged in discussions with the industry to explore further tokenised issuances, aiming to unlock new possibilities

Eddie Yue mentioned at the event:

"In fact, we, ourselves, assisted the government to issue the world's first-ever tokenised government green bond earlier this year in order to demonstrate the compatibility of Hong Kong's legal and regulatory environment with this very new issuance format, to explore the next tokenized issuance in order to open up new possibilities."

He continued:

"Moving forward, we can expect a rise in the tokenisation of differences in order to support the gradual adoption of tokenisation. I will also expect that there will be increased use of blockchain-based payment methods, including things like stablecoin wallets or tokenised deposits offered by the banks.”

Tokenisation Safeguards

Julia Leung, the CEO of the Securities and Futures Commission (SFC), outlined the commission's plans to issue two circulars regarding tokenisation.

One of the circulars will address the identification of risks associated with this innovative technology and the expectations from intermediaries in terms of due diligence and the transfer or primary issuance of assets.

Leung highlighted that the other pending circular will focus on the SFC's requirements for issuing authorised funds, incorporating additional safeguards and expectations to ensure the secure custody transfer of assets and the maintenance of ownership records.

She emphasised the importance of establishing robust protocols, especially considering the evolving nature of this technology.

Acknowledging the industry's experimentation and diverse use cases, Leung underscored the commission's recognition of new risks associated with the transfer, ownership, and recordkeeping of tokens, emphasising the need for comprehensive regulatory measures to mitigate potential vulnerabilities.