One country, two systems? Hong Kong looks set to diverge from China on digital assets

Hong Kong is preparing a series of regulatory reforms to make the city more attractive to businesses in the cryptocurrency and blockchain sectors, after losing businesses to Singapore amid fears that China’s ban on cryptocurrency crypto trading finally hits the town.

Elizabeth Wong, a senior official at Hong Kong’s Securities and Futures Commission, or SFC, said the city has a different crypto policy than mainland China and will not be affected by the general ban on crypto. cryptography on the continent.

“Hong Kong has one country, two systems principle,” Wong said Monday at the InvestHK conference in the city. “It is a constitutional principle that forms the basic foundation of Hong Kong’s financial markets,” said the director of licensing and head of the SFC’s fintech unit.

Hong Kong first attracted some of the biggest crypto exchanges in the world, such as FTX, run by billionaire Sam Bankman-Fried. But Bankman-Fried moved FTX’s headquarters from the city to the Bahamas in 2021, a move followed by the Crypto.com exchange moving to Singapore amid China’s ban on trading digital assets the same. year sparked concern that Hong Kong could follow.

Wong said on Monday that Hong Kong regulators initially took a “cautious” approach to the digital asset industry, such as a ban on retail investing on centralized crypto exchanges in the city.

“Now may be a good time to really think carefully about whether we will continue with this requirement for professional investors,” Wong said. SFC has already eased some restrictions on retail investors, allowing service providers to sell them certain derivatives related to virtual assets starting in January, Wong noted.

Additionally, an anti-money laundering bill introduced in Hong Kong’s Legislative Council could establish a new licensing regime for digital assets if passed. “We hope this regulatory framework can enable the industry to have an orderly and sustainable development while balancing investor protection,” Wong said.

Gain territory?

Hong Kong lost to Singapore as cryptocurrency exchanges like Crypto.com and Huobi moved to the city-state, even as the Monetary Authority of Singapore warned the public of the high risks of investing in crypto and banned certain advertisements by exchanges.

But Singapore has at the same time declared its intention to become a web3 and blockchain-based hub for the financial sector.

Hong Kong’s apparent change in crypto regulations could be an attempt to stem the loss of business to its rival financial hub Singapore, said Anna Liu, chief legal officer of the Asian asset financial services group. end-to-end digital Hashkey Capital.

“Singapore has been pushing the development of the crypto industry since 2019 and I don’t think they will lose the advantage in the short term,” Liu said. However, both jurisdictions have their own strengths, and Hong Kong’s shift to a more Singapore-like attitude will increase its global competitiveness and likely set back some web3 companies, she added.

An updated policy statement on cryptocurrencies is also expected to be released during Hong Kong Fintech Week, which begins October 31, according to a Blog released by Hong Kong Financial Secretary Paul Chan on Sunday.

The statement will cover the city’s policy stance and virtual asset regulations to offer a “vision for Hong Kong’s development into an international virtual asset hub,” according to the blog.

“We see a huge opportunity for Hong Kong to regain its position as a virtual asset and Web 3 hub with a clear legal and regulatory framework,” said Victor Yim, head of fintech at local incubator Cyberport, during of the InvestHK conference on Monday. .

Cyberport is 100% owned by the local government, with about half of the city’s blockchain technology companies and 72% of digital asset start-ups as members.

Brian Chan, chief investment officer at Venture Smart Asia Hong Kong, was also beating the drum for the city at InvestHK. “As a gateway between mainland China and the West, Hong Kong is very well placed for us to acquire talented people and find high-quality developers to work with,” he said. declared.

The government can further support the web3 industry and attract talent through more clarification and transparency on regulations, Chan added. He said Hong Kong’s web3 industry would benefit from integration with the city’s financial market, which boasts of seventh largest stock exchange in the world.