Source: Bauhinia Net
Written by: Wang Huijuan
In the accelerating global digital economy, Hong Kong is strategically positioning itself to seize the development opportunities in digital assets. On June 26, the government issued (Hong Kong Digital Asset Development Policy Declaration 2.0), reiterating its vision to make Hong Kong a global innovation center in the digital asset field. Financial Secretary Chan Mo-po recently granted an exclusive interview to this publication, systematically elaborating on the core essentials of (Policy Declaration 2.0) and detailing Hong Kong's practical paths in digital asset regulation, stablecoin development, tokenization applications, and ecosystem building, demonstrating a firm determination to promote Hong Kong as a global innovation center in digital assets.
Chan Mo-po
Policy iteration from 'framework building' to 'ecosystem cultivation'
"Prudently advancing the development of the digital asset industry is our goal. We hope Hong Kong can establish a responsible, sustainable, and deeply integrated digital asset ecosystem with the real economy," Chan Mo-po stated. The first policy declaration released in October 2022 indicated the SAR government's open and inclusive attitude towards the development of the digital asset industry. At the same time, the SAR government intends to work with financial regulatory agencies to create a more convenient environment to promote the sustainable and responsible development of Hong Kong's digital asset industry. Chan Mo-po pointed out, 'As an international financial center and innovation technology hub, Hong Kong strives to embrace the major trend of digital asset development, actively leading and promoting relevant innovative explorations and developments while balancing 'appropriate regulation' and 'promoting development.' Since the first declaration was published more than two years ago, Hong Kong has made considerable progress in regulatory frameworks and practical explorations.'
Digital assets represent a highly transformative path in the fintech sector, and Hong Kong is seizing this opportunity with an open and prudent attitude. The core of the first policy declaration in 2022 was 'breaking the ground', clarifying regulatory direction and initiating pilot programs to lay the foundation for industry development; while the key of (Policy Declaration 2.0) is 'deep cultivation', promoting Hong Kong's upgrade from a digital asset 'testbed' to a global innovation hub for digital assets through the 'LEAP' framework.
(Policy Declaration 2.0) proposed the 'LEAP' framework, which is the Chan Mo-po team's systematic planning for Hong Kong's digital asset development path. Chan said: "The declaration indicates the SAR government's commitment to making Hong Kong a global innovation center in the digital asset field, and it also marks Hong Kong's move towards forming a trustworthy, sustainable, and deeply integrated digital asset ecosystem with the real economy." He interpreted, 'L' (i.e., Legal and Regulatory Streamlining) focuses on building a comprehensive regulation system, 'We are constructing a complete regulatory framework for digital asset service providers. The current focus is on establishing a licensing system for digital asset trading and custody service providers. We are conducting public consultations on relevant legislative proposals with the Securities and Futures Commission to finalize the details as soon as possible.' 'E' (i.e., Expanding the Suite of Tokenized Products) aims to enrich application scenarios, including normalizing the issuance of tokenized government bonds and providing policy incentives for the tokenization of real-world assets like gold and renewable energy, 'We are preparing to issue the third batch of tokenized bonds and will normalize the issuance of tokenized government bonds. We are also providing incentives for the tokenization of real-world assets, such as clarifying the exemption of stamp duty for the transfer of tokenized exchange-traded funds (ETFs).' 'A' (i.e., Advancing Use Cases and Cross-Sectoral Collaboration) focuses on exploring the implementation of stablecoins in cross-border payments, supply chain management, and other areas, 'Stablecoins provide a cost-effective alternative outside the traditional financial system. We encourage the market to propose how to test and use licensed stablecoins, such as enhancing the efficiency of cross-border payments.' Chan also mentioned that, alongside (Policy Declaration 2.0), Cyberport has launched the 'Blockchain and Digital Asset Pilot Funding Scheme' to provide up to 500,000 Hong Kong dollars in funding for capable local blockchain and Web 3.0 application projects, driving innovative application practices and promoting sustainable industry development. 'P' (i.e., People and Partnership Development) focuses on cultivating professional talent and deepening international regulatory cooperation, 'We will collaborate with the industry and academia to promote talent training and development, positioning Hong Kong as a center of excellence for digital asset knowledge sharing, and enhancing cooperation with other jurisdictions, including joint research programs and cross-border regulatory collaboration, while continually expanding the talent pool.'
The introduction of the 'LEAP' framework strongly promotes the formation of a trustworthy, sustainable, and deeply integrated digital asset ecosystem in Hong Kong. (Policy Declaration 2.0) also covers broader and more specific policy directions and measures. From departmental regulation to cross-agency collaboration, from pilot exploration to ecosystem building, Hong Kong's digital asset policies are achieving a qualitative leap. Behind the iteration of digital asset policies is a profound grasp of market rules. It is essential to prevent risks through clear rules while leaving room for innovation, attracting high-quality global projects to settle while protecting the rights and interests of investors and the public.
Chan Mo-po stated that digital assets are an important and highly promising part of financial technology. Through blockchain technology, they enable more efficient and lower-cost financial transactions, making financial services more inclusive. "(Policy Declaration 2.0) demonstrates our vision for the development of digital assets and showcases the practical applications of tokenization, promoting the diversification of application scenarios. By combining prudent regulation with encouragement of market innovation, we aim to build a more robust digital asset ecosystem that integrates with the real economy and social life, bringing benefits to the economy and society while further consolidating Hong Kong's leading position as an international financial center," said Chan Mo-po.
Balancing 'safety' and 'innovation' in stablecoin regulation
Stablecoins serve as a bridge between traditional finance and digital finance, and their regulation must balance risk prevention and functionality. Chan Mo-po pointed out, 'Stablecoins are relatively new financial instruments, possessing attributes of traditional financial tools while also having their unique characteristics. As a payment tool, stablecoins connect traditional finance with digital assets, facilitating cross-border use. However, the anonymity of stablecoin usage presents regulatory risks, including challenges in anti-money laundering.'
The global stablecoin market has reached a scale of 240 billion US dollars, with transaction volumes exceeding 20 trillion US dollars in 2024, and its applications in payment settlements and capital market activities are becoming increasingly widespread. In the future, stablecoins are expected to be used more broadly, and how to properly manage various inherent and spillover risks is gradually becoming a focus for international regulatory agencies.
"Considering the risks involved in the issuer's business, user protection, market capacity, and long-term development, the government has set relatively high thresholds for licensing, planning to issue only a few licenses in the initial stage," Chan Mo-po emphasized. Clearly, this 'rigorous' strategy is not a limitation on development but aims to cultivate 'responsible innovation'. 'Licensed stablecoin issuers must have sustainable business plans, and the relevant stablecoins must have practical application scenarios, capable of operating in a stable and sustainable manner, and must gain the trust of market participants, with their stablecoins having a certain level of recognition,' Chan said. 'From a compliance perspective, stablecoin issuers must possess sufficient supporting capabilities, critical abilities, and experience in various fields, such as management of reserve assets and asset security, effective price stabilization mechanisms, comprehensive and feasible redemption policies, as well as capabilities in technology security, risk control, and anti-money laundering, among others.'
The 'cross-border' and 'innovative' nature of stablecoins presents dual challenges for regulation. Chan Mo-po and his team are committed to reasonably addressing this issue. Chan emphasized that 'the application scenarios for stablecoins involve other regions. License applicants must have comprehensive compliance plans and sufficient resources to ensure that both they and their business partners hold the required licenses and comply with relevant regulations in Hong Kong and other areas when engaging in stablecoin-related activities.' On one hand, due to the potential involvement of multiple jurisdictions, an international cooperation mechanism needs to be established; on the other hand, because the pace of technological iteration is faster than regulatory updates, regulatory flexibility must be maintained. When discussing market development, license applicants must demonstrate a specific and feasible business plan and possess sufficient technical and financial resources to support operations, ensuring sustainable and robust business operations. Specifically, applicants need to propose how stablecoins can effectively address pain points in economic and financial activities, and licensed issuers must prove that their stablecoins can genuinely resolve economic activity pain points, such as shortening settlement times in cross-border trade and improving capital turnover efficiency in supply chain finance. They must also explain how to maintain sufficient usage and possess adequate resources for continuous operation and development. Chan revealed that after the regulations take effect, the Monetary Authority will quickly initiate licensing approvals while encouraging the market to explore scenario innovations under compliance, allowing stablecoins to truly serve the real economy.
Additionally, the Securities and Futures Commission released a newly formulated 'ASPIRe' roadmap on February 19 this year, outlining 12 key measures under five major pillars to enhance innovation, growth, and security in Hong Kong's digital asset market. The five pillars of the 'ASPIRe' roadmap are Access, Safeguards, Products, Infrastructure, and Relationships. These measures will facilitate connections with global liquidity, achieve adaptive compliance and product frameworks based on safety, and promote the upgrade of traditional financial services using blockchain technology for infrastructure.
As major countries and regions globally gradually establish regulatory systems related to stablecoins, Hong Kong will continue to cooperate with the international community to jointly promote financial stability and innovation. Hong Kong's response strategy is 'dynamic adaptation', maintaining a risk baseline while regularly assessing and adjusting regulatory details, ensuring that rules do not lag behind innovation or condone spillover risks.
(The Stablecoin Regulation) will take effect, and the Monetary Authority will quickly initiate licensing approvals.
The wave of tokenization is moving from 'financial instruments' to 'pervasive across all fields'
Since June 2023, the Hong Kong Special Administrative Region government has implemented a licensing system for digital asset trading platforms, with 11 platforms already licensed and 9 applications currently being processed. The government has issued approximately 6.8 billion Hong Kong dollars in tokenized green bonds on two occasions, proactively demonstrating the benefits of tokenization and empirical evidence of blockchain technology's application value in finance. The (Stablecoin Regulation), effective from August 1 this year, marks a key step in the regulation of new financial instruments in Hong Kong.
The potential of tokenization goes far beyond finance. In the precious metals sector, the tokenization of gold and non-ferrous metals can lower investment barriers, allowing small and medium investors to easily participate in the commodities market. In the green economy sector, the tokenization of renewable energy assets such as solar panels can attract social capital for environmental protection projects, helping to achieve the 'dual carbon' goals. Chan Mo-po emphasized again that the 'Blockchain and Digital Asset Pilot Funding Scheme' launched concurrently by Cyberport has provided a maximum funding of 500,000 Hong Kong dollars for related projects. Several cross-border application projects have already entered the promotion stage.
The core value of tokenization is 'enhancing efficiency and reducing costs'. Taking tokenized bonds as an example, their settlement time has been shortened from the traditional T+2 to minutes, significantly reducing issuance costs; if this is promoted to supply chain finance in the future, 'transfer of goods' can achieve settlement through smart contracts, addressing the pain points of financing difficulties and long payment terms for small and medium-sized enterprises. These practices are not merely technological showcases; they are practical efforts to reduce costs and enhance efficiency in economic activities, which is the significance of the development of digital assets.
Ecosystem building 'talent + collaboration' strengthens the foundation for development
The competition in digital assets is fundamentally a competition for talent and industry ecosystems. Chan Mo-po places great emphasis on 'talent and partner development' when discussing the 'LEAP' framework, and will collaborate with academia to cultivate a new generation of technical experts. To achieve the goal of developing Hong Kong into a knowledge hub for digital assets, it is essential to build a talent ecosystem characterized by 'emerging talent and seamless collaboration' to form a sustainable talent pool that nurtures local strength and gathers global resources.
Currently, the government, universities, and industries have launched relevant talent training courses for digital assets. (Policy Declaration 2.0) clearly positions Hong Kong as a 'knowledge sharing and international cooperation center for digital assets' and proposes to promote joint research, regulatory dialogue, and global talent exchange. The University of Hong Kong's School of Professional and Continuing Education (HKU SPACE) has launched a 'Certificate (Unit: Cryptocurrency Investment Decoding)' course, covering blockchain technology, cryptocurrency trading, DeFi applications, etc., and included it in the Continuing Education Fund's subsidized scope. The Hong Kong Securities and Investment Institute (HKSI) launched the 'Certified Virtual Asset Professional (CVAP)' course in March this year, designed collaboratively with the Securities and Futures Commission to provide training for financial practitioners. Hong Kong Cyberport also launched the 'Blockchain and Digital Asset Pilot Funding Scheme' this year to support the technology implementation of start-ups.
In terms of international cooperation, Hong Kong's unique advantage is its 'dual market connectivity' under 'one country, two systems', deeply integrating into the national opening-up situation while seamlessly connecting with international market rules. Currently, Hong Kong is exploring collaborative development paths between 'offshore digital assets and onshore financial markets' with the mainland, such as researching the application of offshore renminbi stablecoins in cross-border trade and complementing the digital renminbi pilot; at the same time, establishing a 'regulatory sandbox interconnect' mechanism with regulatory agencies in Singapore, the UK, and others to allow innovative projects to be tested across multiple jurisdictions.
Hong Kong's goal is not to 'be self-sufficient' but to provide a 'Hong Kong solution' for global digital asset development. The implementation of (Policy Declaration 2.0) will promote Hong Kong to build a 'responsible, sustainable, and deeply integrated into the real economy' digital asset ecosystem. In the next 3-5 years, Hong Kong is expected to become a core hub for global tokenized asset trading, an experimental field for stablecoin innovation applications, and a gathering place for digital asset talent, making 'Hong Kong Digital Assets' another global calling card after 'Hong Kong Finance'.
Currently, Hong Kong is functioning as a 'firewall' and 'testbed' under 'one country, two systems', adhering to the principle of 'same business, same risk, same rules', adopting a prudent attitude to promote the sustainable development of the digital asset industry. The development of the digital asset market is rapidly changing, and Hong Kong will continue to closely monitor relevant trends, focusing on risk prevention while continuously optimizing and establishing a regulatory system that fits local conditions and follows international standards and practices, promoting the healthy, responsible, and sustainable development of Hong Kong's digital asset market.
From the meticulous refinement of the regulatory framework to the continuous expansion of application scenarios, from the careful cultivation of local talent to the extensive gathering of international resources, Chan Mo-po and his team are advancing Hong Kong's 'acceleration' in the digital asset arena with a steady and determined pace. Chan admitted, "As an international financial center, we firmly believe that Hong Kong's path to advancing the development of the digital asset industry can provide experience and references for the development of the global digital asset market." This dual exploration of finance and technology driven by policy innovation is not only related to the future of Hong Kong's financial market but will also contribute unique 'Hong Kong wisdom' to the development of the global digital economy.