Despite the ongoing crypto winter, which has affected many businesses in the greater Web3 space, Hong Kong has suggested a number of measures to grow the virtual assets sector and promote the city as a global cryptocurrency powerhouse.
The actions include millions of dollars of funding to assist the development of the Web 3 ecosystem, tokenizing green bonds, establishing a new licensing framework for virtual asset providers, and enabling cryptocurrency trading by retail investors.
On February 20, the Securities and Futures Commission (SFC) of Hong Kong revealed its proposed rules for trading platforms for virtual assets. The plan advises that all centralized cryptocurrency trading platforms operating in Hong Kong be forced to acquire a license from the regulatory agency and outlines a new licensing framework for the industry.
In addition, a number of requirements are laid out for cryptocurrency exchanges and service providers.
Prerequisites for this include a wide range of things, such as the safe custody of assets, Know Your Customer, conflicts of interest, cybersecurity, accounting and auditing, risk management, anti-money laundering/counter-financing of terrorism, and prevention of market misbehavior.
Operators will be responsible for doing due diligence on tokens and keeping track of them under the proposed regulations. This involves evaluating the asset's regulatory status in each country where the operator offers trading services. Moreover, it suggests examining the operator's liquidity and whether or not a small number of people or groups control or have a disproportionate amount of the operator's holdings.
The "recent turmoil" in the cryptocurrency ecosystem and the failure of important companies like FTX, according to SFC CEO Julia Leung, are the primary reasons behind the need for clear regulatory guidelines for the industry that put investor protection first.
The Hong Kong government is devoting HK$50 million (US$6.4 million) this year to support the development of the Web3 business in addition to establishing a licensing system for crypto service providers.
According to its 2023-2024 budget published on Wednesday, the funds will be used for events like organizing significant international conferences and "workshops for young people" to support the growth of the Web3 ecosystem.
The government-run business hub Cyberport, which launched the Web3Hub@Cyberport accelerator this year, will handle the investment. In an interview with local media, Johnny Ng Kit-Chong, co-founder of the accelerator and a Legislative Council member, said that the accelerator aims to attract 1,000 Web3 start-ups to Hong Kong in the next three years.
Furthermore, the Hong Kong government also revealed the Green Bond Program, which has resulted in the issuance of tokenized green bonds worth 800 million Hong Kong dollars, or around $100 million. Four banks underwrote the bonds, which had a 4.05% yield when they were priced.
The practice of tokenizing, or expressing assets or securities as digital tokens, is a relatively recent idea in finance. The issuing and trading of securities can be made more transparent, efficient, and accessible by issuers by leveraging blockchain technology to produce digital tokens. A substantial change from conventional settlement procedures, which frequently rely on human verification and paper-based paperwork, is being made with this transition to the digital settlement of bonds on private blockchain networks.
These moves would represent a substantial reversal from the SFC's previous policy of only allowing professional investors to trade cryptocurrency on centralized exchanges.
Singapore, a region that is crypto-friendly and a longtime rival of Hong Kong in the financial industry, has been discouraging people from trading cryptocurrencies for profit while also prohibiting the advertising of cryptocurrency services in public spaces.
Major cryptocurrency exchanges Huobi Global and OKX, both of which have their roots in mainland China, have declared their intention to apply for licenses in Hong Kong in accordance with the new standards due to the surge in business interest.
Gate.io, a cryptocurrency exchange, is also preparing to establish itself in Hong Kong.
On February 22, Gate Group announced that it would apply for a crypto license in Hong Kong so that it could introduce "Gate HK."
Dr. Han Lin, the founder of Gate Group, referred to Hong Kong as a "hub" and a "global key market" because of its "industry-leading regulatory environment."
After losing a number of cryptocurrency companies over the last few years, Hong Kong outlined measures to improve its position in the virtual asset sector at the end of October of last year.
Since then, the government has unveiled new regulatory measures for cryptocurrency firms, with new rules that allow retail investors to buy tokens with large market capitalizations.
Additionally, Hong Kong is preparing additional initiatives to support the growth of the digital economy, including fintech and AI.
Due to the continued integration of the Greater Bay Area, which consists of Guangdong, Hong Kong, Macau, and nine neighboring Mainland cities, into a single economic region, the city is well-positioned to continue making money from its role as a gateway for companies seeking access into Mainland China.
For instance, Shenzhen is home to numerous tech giants and a sizeable number of hardware and consumer electronics companies. The city's Nanshan district is well known for producing a lot of hardware. Hong Kong's fintech sector is a key competitive advantage. As a result, the fintech businesses in Hong Kong can use cooperative sandbox projects to carry out pilot tests to assess their cross-border initiatives in the Greater Bay Area.
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