HKSAR sets out policy stance on virtual assets' development, aims for vibrant sector
Published: Oct 31, 2022 07:35 PM
Pedestrians walk outside the Hong Kong Stock Exchange on February 4, 2022. Photo: VCG

Pedestrians walk outside the Hong Kong Stock Exchange on February 4, 2022. Photo: VCG

The government of the Hong Kong Special Administrative Region (HKSAR) on Monday set out its policy stance on the development of virtual assets (VA) in the city, aiming to build a vibrant VA sector and ecosystem.

The local securities and futures regulator also announced on the same day that it would consider authorizing exchange traded funds (ETFs) with VA as their underlying assets.

The vision could pave the way for the city to play catch-up with Singapore, which has over recent years spearheaded VA development in notably Asia, industry observers said.

In a statement on its online news platform, the HKSAR government revealed plans, in conjunction with the financial regulators, to provide a facilitating environment for fostering the sustainable and responsible development of the local VA sector.

"Timely and necessary guardrails will be put in place to mitigate actual and potential risks in line with international standards, so that VA innovations can thrive in the city in a sustainable manner," read the statement.

The policy stance and approach toward materializing the vision offers Hong Kong a chance to "make up a missed lesson" in the virtual asset arena, Cao Yin, managing director of the Digital Renaissance Foundation in Shanghai, told the Global Times on Monday.

Singapore has risen to prominence over the past few years as an epicenter of VA-related talent and capital, Cao said. 

Nonetheless, VA infrastructure, the degree of internationalization and market size remain weak links that weigh on Singapore's prowess as a global virtual asset hub, he continued, expecting Hong Kong to bank on the new vision to play catch-up. 

More specifically, the HKSAR government disclosed in the Monday statement that it's "open to future review on property rights for tokenized assets and the legality of smart contracts, so as to facilitate their development in Hong Kong."

Additionally, "consultation outcome and next steps will be announced in due course by the Monetary Authority on the regulatory regime for stablecoins," the HKSAR government said.

On top of that, the HKSAR government and local regulators are mulling over a number of pilot programs to test the VA-enabled technological benefits as well as their further applications in the financial markets. One such projects was the "non-fungible token (NFT) issuance for Hong Kong Fintech Week 2022, along with green bond tokenization, and e-HKD."

"Our policy stance on VA is now clearly communicated to the global markets and serves to demonstrate our commitment and determination to explore financial innovations together with the global VA community," HKSAR Financial Secretary Paul Chan Mo-po was quoted as saying in a statement.

Simultaneously, in virtual remarks to the Hong Kong FinTech Week 2022, Yi Gang, governor of the People's Bank of China (PBC), the central bank, said that the PBC is cooperating with the Hong Kong Monetary Authority and other monetary authorities on its central bank digital currency (CBDC).

It's hoped that such cooperation can better serve international and domestic market needs and help in consolidating Hong Kong's role as an international financial hub, Yi stated, per a transcript of Yi's speech posted on the PBC's website on Monday.

E-CNY is a digital currency issued by the PBC that mainly targets cash in circulation (M0), according to Yi, noting that e-CNY research is largely intended to meet domestic retail payment demand, improve financial inclusiveness, and enhance the efficiency of the system of CBDC issuance and payment. 

Also on Monday, the Hong Kong Securities and Futures Commission (SFC) released a circular that set out the requirements for the authorization of VA ETFs primarily through futures contracts that seek a listing in Hong Kong.

The SFC said in the circular that it "will keep in view and closely monitor the development of the VA market and its regulatory landscape regarding the appropriateness of authorization of ETFs that invest directly in spot VAs."

"This will further strengthen Hong Kong's role as an international financial center, as well as supporting the continued growth of Hong Kong as Asia's preferred ETF marketplace," Wilfred Yiu, co-chief operating officer and co-head of markets at Hong Kong Exchanges and Clearing (HKEX), the operator of Hong Kong's stock exchange, said in remarks circulated shortly after the SFC's virtual asset ETFs announcement.

HKEX is well-positioned to capitalize on VA opportunities, Yiu said, and the exchange operator will work closely with issuers and other stakeholders toward introducing the new ETF product.

The market will be updated as appropriate, according to Yiu, without giving a specific timeframe for the availability of the VA ETFs.