Hong Kong competes to become the global virtual asset trading center to accelerate the globalization of the country's digital economy

As the concept and technology of the Metaverse are gaining popularity around the world, top-level designs of governments across the mainland and industry application scenarios are gradually being implemented, the future opportunities brought by the entry of virtual assets into Web3.0 cannot be ignored, and the virtual asset market has become indispensable. This is not only an important step for Hong Kong to consolidate and strengthen its international financial center, but also an important economic ecosystem that is integrated into the development of the national digital economy and the Metaverse/Web3.0.

As early as 2019, Hong Kong had been given a corresponding role in the national digital economy development pattern. In the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area issued by the State Council, it was clearly proposed to support Hong Kong in building an international financial center, give play to Hong Kong's leading and driving role in the financial field, consolidate and enhance Hong Kong's status as an international financial center, promote the development of finance in the direction of high-end and high-value-added, and support the Guangdong-Hong Kong-Macao Greater Bay Area to become an international financial hub by combining Guangzhou and Shenzhen, two national regional financial centers. The 2021 National "14th Five-Year Plan" also further proposed to support Hong Kong in enhancing its status as an international financial center and strengthening its functions as an international asset management center and risk management center.

Virtual assets are currently very attractive to global financial innovators and investors. As an international financial center, Hong Kong has always been open and inclusive to innovators engaged in virtual asset business around the world. It also appreciates and encourages innovators to develop the field of distributed ledger technology (DLT) and develop more cost-effective, inclusive, flexible and epoch-making new financial innovation solutions. At the same time, it actively promotes the sustainable development of various financial services across the entire virtual asset value chain, covering virtual asset issuance, tokenization, trading and payment platforms, financial and asset management, and custody. To this end, the Hong Kong government is cooperating with financial regulators to focus on the improvement of laws, regulations and regulatory systems, fully consider the continuous evolution and innovation of virtual assets, maintain the sustainability of the industry, and create a more convenient and safer ecological environment for the development of the industry.

2. The Hong Kong government is making steady progress in policy guidelines and regulatory mechanisms, and has achieved milestones

The government and regulators have studied and launched three pilot programs (Fintech Week NFT, Green Bond Tokens, Digital Hong Kong Dollar) to test the technical benefits brought by virtual assets and try to further apply the relevant technologies to the financial market. In February this year, a tokenized green bond of HK$800 million was successfully issued under the Government Green Bond Program, which was the world's first tokenized green bond issued by the government. This successful issuance marks a milestone in Hong Kong's combination of the bond market, green and sustainable finance, and financial technology. In addition, the meaning and positioning of the "digital Hong Kong dollar" here are different from the "digital RMB" being promoted at the national level. The "digital RMB" is a legal currency in digital form issued by the People's Bank of China, while the "digital Hong Kong dollar" is the "backbone" and pillar with stable currency characteristics that connects legal currency and virtual assets. The "Declaration" describes stable currency as "a medium of exchange between cryptocurrency and legal currency."

The Hong Kong government and regulators have always taken "same business, same risks, same rules" as the regulatory principle and formulated a comprehensive virtual asset regulatory framework, covering virtual asset funds and discretionary account management, distribution of virtual asset-related products, virtual asset transactions, etc. As for the scope of supervision, there is an international consensus that appropriate supervision needs to be formulated for different areas of stablecoins in terms of governance, stability and redemption mechanisms. Through the solicitation of preliminary draft opinions, the Hong Kong Monetary Authority received 58 opinions from well-known institutions in the industry, and issued the "Summary of Discussion Papers on Crypto Assets and Stablecoins" on January 31, 2023, which explicitly proposed to include several activities related to stablecoins in the regulation, support the regulation of stablecoins in a risk-based and flexible manner, and expect to implement it in 2023-2024. From the specific regulatory requirements of the "Summary", it will be based on a comprehensive regulatory framework, and appropriate regulatory requirements will be formulated in the fields of but not limited to ownership, governance and management, financial resource requirements, risk management, anti-money laundering and counter-terrorist financing, user protection, regular audits and disclosure requirements.

To further implement a comprehensive regulatory framework, the Hong Kong government is working on establishing a licensing system for virtual asset service providers. In February this year, the Hong Kong Securities and Futures Commission announced that it would publicly solicit opinions from the market on the proposed regulations for virtual asset trading platform operators, focusing on "whether licensed platform operators should be allowed to provide services to retail investors" and "how to protect investors". The goal is to allow retail trading under the new licensing system for cryptocurrency exchanges on June 1. A spokesman for the Securities and Futures Commission said that the two digital assets "Bitcoin" and "Ethereum" will most likely be listed on Hong Kong trading platforms. Currently, the Hong Kong Securities and Futures Commission is trialing cryptocurrency trading, allowing only professional investors with about HK$8 million in bank assets to participate. After the rules are promulgated, it will be gradually opened to other retail investors under certain conditions. However, individual investors will only be able to deal with "highly liquid" cryptocurrencies at that time.

3. Hong Kong’s global virtual asset trading center is of great significance to the global development of the country’s digital economy