Secretary for Financial Services and the Treasury Christopher Hui Ching-yu announces the details of the Hong Kong FinTech Week 2022 initiatives on non-fungible tokens and shares a teaser related to the HKSAR govt's announcement regarding the policy statement on the development of virtual assets in Hong Kong on Oct 13, 2022. (PHOTO / HKSAR GOVERNMENT)
Hong Kong is establishing a comprehensive regulatory regime on virtual assets which is different from many other jurisdictions’ limited rules that focus on battling money laundering or on payments, Secretary for Financial Services and the Treasury Christopher Hui Ching-yu said Wednesday.
Answering a query at the Legislative Council, Hui said this pioneering approach can boost investor confidence after the turbulence in the virtual asset market in recent years.
“Hong Kong as a ‘pioneer’ of implementing a comprehensive system can increase investors' confidence in the regulated VA service providers in Hong Kong,” he said.
To enhance its regulatory framework, the special administrative region government introduced to the Legislative Council in July legislative proposals to establish a licensing regime for virtual-asset service providers.
Under the proposed licensing regime, licensed exchanges must comply with anti-money-laundering and counterterrorist financing requirements as well as regulatory requirements on investor protection, including proper asset custody, ensuring financial soundness and avoiding conflicts of interest
Under the proposed licensing regime, licensed exchanges must comply with anti-money-laundering and counterterrorist financing requirements as well as regulatory requirements on investor protection, including proper asset custody, ensuring financial soundness and avoiding conflicts of interest, Hui said.
The licensing regime will help licensees build up a reputation for accessing more investors in the Hong Kong market, he added.
Hui’s reply came after the rapid downfall of cryptocurrency exchange FTX, which filed for bankruptcy protection this month in one of the highest-profile crypto blowups after traders rushed to withdraw $6 billion from the platform in just 72 hours. Rival exchange Binance abandoned a proposed rescue deal after examining FTX’s finances.
With the turbulence in the virtual-asset market in recent years, referred to as “crypto winter” in the industry, regulatory bodies around the globe have started to pay attention to investor protection and financial stability, considering them important in Hong Kong’s regulatory system, Hui said.
Since 2018, the Securities and Futures Commission has established a holistic regulatory framework for virtual assets under the principle of “same business, same risk, same rules”, covering the provision of virtual asset-related services by traditional financial service intermediaries and transactions conducted by centralized virtual-asset exchanges.
The SFC and Hong Kong Monetary Authority also further issued a joint circular earlier this year to provide guidelines for intermediaries intending to engage in virtual-asset-related services.
Last month, the SAR government issued the Policy Statement on the Development of Virtual Assets in Hong Kong, setting out a clear vision of building the city into an international virtual-asset center.
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“As stated in the Policy Statement, the government hopes and is confident that Hong Kong can develop a prosperous virtual asset industry and ecology,” Hui said.
“Through the establishment of a comprehensive and clear regulatory system and a series of supporting measures as mentioned above, we are expecting more quality virtual-asset enterprises to set up businesses in Hong Kong or to seek development opportunities in Hong Kong,” he added.
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