The Business Times

Hong Kong moves towards legalising retail-investor crypto trading

Published Mon, Oct 31, 2022 · 11:32 AM

HONG KONG will start a consultation on legalising crypto trading by retail investors as it seeks to create a hub for digital tokens under a wider push to restore the city’s credentials as a financial centre.

The consultation will focus on how the retail segment “may be given a suitable degree of access”, according to a statement on Monday (Oct 31) from the government. The city invited global crypto exchanges to explore business opportunities, adding that work towards a new virtual-asset licencing regime is intensifying.

Hong Kong said it’s “open to the possibility” of listing crypto exchange-traded funds under an overall goal of “sustainable and responsible development” of the digital-token sector.

Years of political turmoil and Covid curbs sparked a talent exodus from Hong Kong, undermining the city’s claim to be Asia’s financial nerve centre. Officials are now trying to undo some of that damage by wooing businesses back, though it remains an open question how successful they will be.

“The policy statement explains in detail our vision and approach, regulatory regimes, thoughts on investors’ exposures, and our pilot projects to embrace the technological benefits and financial innovations brought by” virtual assets, Financial Secretary Paul Chan said.

In a separate policy paper, Hong Kong said it “will be careful and cautious about the risks to retail investors” and will enhance education and ensure appropriate regulatory arrangements are in place.

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Bloomberg News reported earlier that a planned mandatory licencing programme for crypto platforms due to be enforced in March next year is likely to allow retail trading. The current voluntary crypto framework in Hong Kong restricts exchanges to clients with portfolios of at least HK$8 million (S$1.4 million).

“A consistent framework for crypto regulation is essential and key to growing institutional and retail adoption of digital assets at scale,” Yvonne Szeto, vice-president at Worldpay from FIS, said in a Bloomberg Television interview. She added she welcomes the direction Hong Kong is moving in.

In Monday’s statement, Hong Kong also said it’s willing to review “property rights for tokenized assets and the legality of smart contracts”.

Tokenisation refers to the process of using blockchain technology to create tradable tokens that could represent a range of assets or fractions of them. Smart contracts, key to decentralised finance applications in crypto, are software programmes that automatically execute when certain conditions are met.

Singapore, Japan

Regulators globally are grappling with how to oversee the volatile digital-asset sector, which is picking up the pieces of a US$2 trillion rout over roughly the past year. The shakeout may lead to a reordering of crypto markets in Asia.

For instance, Singapore is tightening up to restrict retail transactions after being buffeted by high-profile crypto blowups. But Japan is taking steps to make it easier to list tokens, partially reversing a conservative stance. Australia is becoming a hub for digital-asset exchange-traded funds.

Hong Kong used to be a base for big exchanges like Binance and FTX. They were lured by a laissez-faire reputation and close ties with China.

The city introduced the voluntary licencing regime in 2018 but only two firms were approved for permits, BC Technology Group and HashKey. The opt-in framework seemed to signal a toughening approach that would turn away lucrative consumer-facing businesses. FTX decamped to the Bahamas last year.

Digital-token transaction volume in Hong Kong expanded less than 10 per cent in the 12 months through June from a year earlier, the least in East Asia outside of a slump in China, according to blockchain specialist Chainalysis. The city’s overall global ranking for crypto adoption fell to 46 in 2022 from 39 in 2021. BLOOMBERG

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