Annual review of Hong Kong’s virtual asset policy in 2023: The dawn of light has emerged

Written by: Bai Lu, Bowen, Bai Lu Living Room

The Hong Kong virtual asset market in 2023 will be full of excitement.

From Hong Kong's "still half-hidden" approach to the crypto industry in 2018, it has only scratched the surface; to recent years, in the face of the eyeing gaze of Singapore, a strong financial rival in East Asia, and the contextual support of the Chinese self-deprecating "crypto-Jews", Hong Kong announced in October 2022 The Chinese-speaking circle was skeptical of the lofty words of "Competing for a Global Virtual Asset Center" to be completely All-in; until the Wanxiang Carnival Summit in Hong Kong in April 2023, there was a huge crowd and a mixed carnival started.

After June 2023, a series of intensive virtual asset policies were implemented at a speed exceeding expectations.exchangeThe new regulations from STO licensing, licensed funds and ETFs, and stable currency regulations have created a world-leading favorable regulatory environment; in the second half of the year, Hong Kong’s virtual assetsexchange, securities firms, asset management funds, venture capital institutions, and OTC merchants have successively opened their businesses. Although the initial infrastructure was insufficient and there were some losses, all businesses are now in operation.

On the other hand, Hong Kong's traditional financial market is bleak and self-deprecating about the "ruins of Hong Kong's financial center." The emerging market for virtual assets may become a booster for Hong Kong’s financial market, attracting traditional financial institutions from Hong Kong and mainland China to enter the market.

As of 2023, we believe that Hong Kong has basically gained a firm foothold in the global competition in the virtual asset market., has created a world-leading favorable regulatory environment. With the next crypto bull market and the U.S. interest rate cut cycle, Hong Kong will be based in East Asia, radiate around the world, and have the opportunity to lead the global crypto market.

The light has appeared.

At this moment, Bailu Living Room will lead everyone to review the context of Hong Kong’s virtual asset policy in 2023, and gain a deep understanding of the compliance process from the financial supervision side.SafetyOn the basis of compliance, we should be prepared 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 Bureau of the Hong Kong Monetary Authority launched a public consultation on the "Legislative Proposal on Strengthening Regulation of Combating Money Laundering and Counter-Terrorist Financing in Hong Kong" to discuss the licensing system for virtual asset service providers;

• On October 31, 2022, the "Policy Declaration on the Development of Virtual Assets in Hong Kong" was released;

• On December 8, 2022, the "Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022" was officially passed by the Legislative Council, and virtual asset service providers were officially supervised by Hong Kong law;

• On January 31, 2023, the Hong Kong Monetary Authority released the consultation summary on the virtual assets and stable currency discussion paper;

• On May 16, 2023, the Hong Kong Monetary Authority’s official website announced the results of the public consultation on the “Guidelines on Combating Money Laundering and Terrorist Financing”;

• On May 31, 2023, the official website of the Hong Kong Securities and Futures Commission announced the "Circular on the Implementation of a New Licensing System Designed for Virtual Asset Trading Platforms";

• On June 1, 2023, the new licensing system for virtual asset trading platforms will take effect;

• On October 20, 2023, the "Joint Circular on Virtual Asset-related Activities of Intermediaries" was released, and securities firms and banks can carry out virtual asset retail business with a license;

• On November 2, 2023, "Relevant intermediaries engaged inToken"Circular on Securities-related Activities" was released, STO does not need to compel professional investors; on the same day, "RelevantTokenThe Circular on Investment Products Recognized by the China Securities Regulatory Commission was released;

• On December 22, 2023, the official website of the Hong Kong Securities and Futures Commission announced the "Notice on Funds Involving Virtual Assets Recognized by the SFC" and was ready to accept applications for virtual asset spot ETFs; on the same day, the "Notice on Virtual Asset-related Activities of Intermediaries" "Joint Circular" has been updated to clarify the distribution regulations including virtual asset spot ETFs;

• On December 27, 2023, the Hong Kong Treasury Bureau and the Hong Kong Monetary Authority jointly issued a public consultation document to collect suggestions on the new legislation on stable currencies.

Virtual asset trading platform licensing system implemented

What is important in Hong Kong in 2023 is the launch of a compliant virtual asset trading platform.After many years of work, the Hong Kong Treasury Bureau, the Hong Kong Monetary Authority, and the Securities and Futures Commission joined forces and communicated with the industry many times to finally implement the virtual asset trading platform licensing system.

In May 2021, the Treasury Bureau of the Hong Kong Monetary Authority launched a public consultation on "Legislative Proposals on Strengthening Regulation on Combating Money Laundering and Counter-Terrorist Financing in Hong Kong", focusing on the discussion on "Proposals on establishing a licensing system for virtual asset service providers" ”, affirming the legislative needs of the licensing system and clarifying the coverage, licensing conditions and supervision methods.

On December 8, 2022, the Legislative Council officially passed the new regulations on virtual assets. Hong Kong officially regulates virtual assets and has a clear definition of virtual assets.

On May 31, 2023, the official website of the Hong Kong Securities and Futures Commission issued the "Circular on the Implementation of a New Licensing System Designed for Virtual Asset Trading Platforms". The circular stated:A new licensing system specifically designed for centralized virtual asset trading platforms under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance will come into effect on June 1, 2023. Under the new system, centralized 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 issued the latest regulatory requirements, including "Guidelines Applicable to Virtual Asset Trading Platform Operators", "Guidelines on Combating Money Laundering and Counter-Terrorist Financing", "Guidelines issued by the Securities and Futures Commission applicable to licensed corporations and Guidelines on the Prevention of Money Laundering and Counter-Terrorist Financing by Associated Entities of Virtual Asset Service Providers Licensed by the Securities and Futures Commission, and the Licensing Manual for Virtual Asset Trading Platform Operators.

Since then, the licensing system has officially been implemented, and the war for licensed trading platforms in Hong Kong has officially begun.

OSL and Hashkey have been deployed for the longest time. On August 3, 2023, the two platforms announced on the same day that they had received approval from the Hong Kong Securities Regulatory Commission to provide virtual asset trading services to retail customers, marking Hong Kong's entry into the era of retail investors.

As of the date of publication, in addition to two licensed exchanges,A total of 11 institutions have applied for virtual asset exchange licenses. It also indicates that Hong Kong’s virtual asset market still has huge potential and opportunities, waiting for investors to discover.

Trillion traditional securities firms and banks enter retail market

On October 20, 2023, the official website of the Hong Kong Securities and Futures Commission announced the "Joint Circular on Virtual Asset-related Activities of Intermediaries", once again ignited market enthusiasm.

The circular provides new explanations on virtual asset-related businesses in Hong Kong in five aspects. Including: distributing virtual asset-related products (requires holding a virtual asset license No. 1), providing virtual asset trading services (requiring a virtual asset license No. 7), providing asset management services for virtual assets (requiring a virtual asset license No. 9), and Provide opinions on virtual assets (requires holding Virtual Asset No. 4 license) and specific implementation methods.

According to the previous bill, retail client business can only be carried out by compliant exchanges. After this circular is updated,券商或银行若持有虚拟资产 1 号和 4 号牌，即可通过升级虚拟资产牌照对 C 端零售用户开展虚拟资产和证券型代币 STO 业务。It is also clearly stated that digital asset custody can be managed by banks and other traditional financial institutions themselves.

After the implementation of this move, it will be a shot in the arm for the further expansion of Hong Kong’s virtual asset market.The handling fees of licensed and compliant virtual asset trading platforms lack a competitive advantage. In addition, the virtual asset market fluctuates significantly and learning costs are extremely high. The growth rate of retail users has always been slow. After the issuance of the circular, the exposure of traditional banks and securities firms will be opened up, and more traditional investors who intend to invest in virtual assets can directly invest in virtual assets through traditional institutions, which may bring a trillion-level market increase.

Once the circular was issued, the results were remarkable. Taking Victory Securities, the first Hong Kong local securities firm to start virtual asset retail business, as an example. As of December 30, 2023, Chen Peiquan, executive director of Victory Securities, released data showing that since the company responded to the policy and launched virtual asset trading services, the average monthly The turnover has reached US$10 million, and its virtual asset business has made profits. Among them, investments mainly in Bitcoin account for about 80% of its overall virtual asset investment. As more traditional securities firms join, the growth rate of virtual asset-related customers will still double in 2024.

For details, please refer to:Trillions of traditional securities firms and banks are entering the retail market! Interpretation of Hong Kong’s new virtual asset intermediary circular

Big adjustment after four years: STO does not need to enforce "professional investors only"

On November 2, 2023, the official website of the Hong Kong Securities and Futures Commission issued the "Circular on Intermediaries Engaging in Tokenized Securities-related Activities", replacing the "Statement on the Issuance of Security Tokens" issued on March 29, 2019.

The circular provides important clarifications on two important issues: whether tokenized securities are complex products and whether restrictions only for professional investors should be imposed. According to the content of the circular:Tokenized securities no longer require “professional investors only” restrictions; At the same time, new explanations are given on relevant vocabulary, 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 official website of the Hong Kong Securities and Futures Commission released the "Circular on Tokenized Securities and Futures Commission-Recognized Investment Products", sets out what the SFC is considering:Relevant provisions that allow the tokenization of investment products offered to the public in Hong Kong that are authorized under Part IV of the Securities and Futures Ordinance.It also focuses on the primary market and makes various requirements such as token management, public disclosure, intermediaries, and employee capabilities.

It has been 4 years since the last policy change. With this update of the circular, Hong Kong has prepared the soil for STO-based financial innovation to take root. The market responded equally quickly, and institutions such as CSpro, Harvest Fund, and OSL began to prepare corresponding products.

From digital Hong Kong dollar promotion to Hong Kong government green bondsBlockchainIssuance; various promotion trials have been continuously carried out. By the launch of new STO regulations in 2023, the Hong Kong government’s attitude has been very clear:Hong Kong will fully support various types of traditional securities, as well as financial innovations such as tokenization of physical assets including RWA; the Hong Kong government also supports opening up STO adoption to the market and more people, leading Hong Kong to truly embark on the journey to build the world's Web3.0 finance center road.

For relevant information on the circular, please refer to:Big adjustment after four years! Hong Kong Securities and Futures Commission: STO does not need to enforce "professional investors only"New Hong Kong STO regulations: Circular on tokenized SFC-approved investment products

Bitcoin/Ethereum spot ETF is about to be approved

On December 22, 2023, the official website of the Hong Kong Securities and Futures Commission announced a new version of the "Circular on Funds Involving Virtual Assets Recognized by the SFC", replacing the "Circular on Virtual Asset Futures Exchange Traded Funds" issued on October 31, 2022. .

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, Ethereum) that are allowed to be traded on licensed trading platforms, licensed institutions can issue and manage corresponding spot ETFs, and exchange them in physical and cash on licensed trading platforms or recognized financial institutions. There are two ways to subscribe and redeem.

On the same day, the official website of the Hong Kong Securities and Futures Commission 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 20, 2023.

The circular clearly stated:The China Securities Regulatory Commission has recognized virtual asset futures ETFs and is ready to accept authorization applications for other funds involving virtual assets, including virtual asset spot exchange-traded funds and virtual asset spot ETFs.. In response to the above-mentioned latest market developments, the regulatory authorities have updated the relevant policies, including: clearly setting out the requirements applicable to intermediaries when distributing virtual asset-related products, and setting out the requirements for intermediaries to distribute virtual asset products authorized by the SFC. standards of conduct that should be met when investing in asset funds.

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 become the most feasible method to introduce capital and open up the incremental market.In 2023, just the 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 a market that has been dormant for 2 years; this time, Hong Kong has followed the United States as quickly as possible pace of.

January 10, 2024 HaXiaobai NavigationLivio Weng, chief operating officer of shKey Group, revealed in an exclusive interview with Caixin that as of January 10, about ten fund companies are preparing to launch virtual asset spot ETFs in Hong Kong, and seven or eight of them are in the actual advancement stage. .The preparation phase has ended, and Hong Kong is becoming the first market in Asia to allow the listing of virtual asset spot ETFs.

For relevant information on the circular, please refer to:SFC’s new regulations are introduced, and the Hong Kong Bitcoin/Ethereum spot ETF is about to be approved!

New Stablecoin Legislation Is Coming

On January 31, 2023, the Monetary Authority summarized the stablecoin discussion document released in 2022. Respondents generally supported the risk-based and flexible approach to regulating stablecoins.

On December 27, 2023, the Financial Services and the Treasury Bureau (Treasury Bureau) of Hong Kong and the Hong Kong Monetary Authority (HKMA) jointly issued a public consultation document, to collect opinions on legislative proposals for regulating stablecoin issuers. Another core piece of the puzzle for virtual asset market supervision is expected to be implemented in 2024.

The consultation document covers the latest measures and legislative proposals from the Hong Kong government on the supervision of stablecoin issuance, including:Stablecoin supervision covers many aspects, including legislative methods, regulatory framework for fiat currency stablecoin issuers, fiat currency stablecoin custody and purchase services, regulatory rights, violations of regulations and sanctions, appeals, and transitional measures.Solicit opinions from all aspects of the SAR to promote the implementation of stable currency regulatory legislation.

The document highlights that the Hong Kong government proposesIntroducing new legislation to implement the licensing system for fiat stablecoin issuers.Possessing elements include:Define fiat currency stablecoins as cryptographically protected digital forms of value that claim or appear to maintain a relatively stable value with one or more legal currencies and have other relevant characteristics; and require all companies in Hong Kong to issue fiat currency stablecoins, issue claims or appear to be Issuers that are Hong Kong dollar stablecoins or actively promote their fiat currency stablecoins to the Hong Kong public have obtained a license from the Monetary Authority, etc.. 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 are also a means of grasping the lifeblood of the virtual asset industry.Tether's revenue of US$1.5 billion in the first quarter of 2023, and its market value that is still rising and breaking new highs, have proven to the global market that a prosperous virtual asset market cannot be separated from the cornerstone of stablecoins. The dominance of US dollar stablecoins needs to be broken. In 2024, we look forward to Hong Kong implementing the Stablecoin Supervision Act. We also look forward to the achievements of Yuanbi, Hashkey, Zhongan Bank and other institutions to consolidate the Hong Kong stablecoin market.

The complete content of the consultation document can be found at:New regulations on stablecoins are coming! An overview of the Hong Kong Treasury Bureau & Monetary Authority’s legislative proposals

Hong Kong 2024: The East is about to dawn, time is waiting to be released

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 has created the most favorable virtual asset regulatory policy in the world with a uniquely positive attitude; those who will take over in 2024 will be institutions and teams from all parties, which need more technology and business innovation. Create more market value.

Hong Kong, the Pearl of the Orient, has been rising; what awaits us will be more extraordinary and glorious chapters.

The article comes from the Internet:Annual review of Hong Kong’s virtual asset policy in 2023: The dawn of light has emerged

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