Hong Kong's SFC updates digital asset development framework

On Thursday, the Hong Kong government issued Policy Statement 2.0 on the Development of Digital Assets in Hong Kong. The new policy statement cements the country’s commitment to establishing Hong Kong as an international center for digital asset innovation.

Hong Kong’s new policy statement amplifies the foundational measures outlined in the initial policy statement released in October 2022. The SAR also said the new statement establishes a vision for a trusted and innovative DA ecosystem that prioritizes risk management and investor protection.

Hong Kong puts focus on regulating the DA ecosystem

The Special Administrative Region announced that the government is establishing a regulatory framework for DA service providers, covering DA exchanges, stablecoin issuers, DA dealing service providers, and DA custodian service providers. The statement disclosed that the Securities and Futures Commission (SFC) will take the lead in the upcoming licensing regimes for DA dealing service providers and DA custodian service providers.

The SAR also revealed that the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority will be overseeing a legal review to allow the tokenization of real-world assets (RWAs) and financial instruments. According to the region, the new policy statement will consider distinct features of tokenized bond issuance and transactions, including settlement, registration, and record requirements.

“The framework set out in the Policy Statement 2.0 helps us ‘LEAP’ towards a trusted, sustainable and deeply integrated DA ecosystem embedded within the real economy. It also keeps Hong Kong at the forefront of digital transformation, offering a clear roadmap for businesses and investors to thrive in a secure and vibrant DA market.”

–Christopher Hui, Secretary for Financial Services and the Treasury in Hong Kong.

The policy statement revealed that the government wants to regulate the issuance of tokenized government bonds and propel the tokenization of RWAs. The SAR said the initiative aims to enhance liquidity and accessibility by clarifying the stamp duty statement for tokenized exchange-traded funds (ETFs).

The Hong Kong government also welcomed the introduction of secondary market trading of the tokenized funds on licensed DA trading platforms. The government added that it will promote the tokenization of a flurry of assets and financial instruments to illustrate the adaptability of the technology across sectors such as precious metals, non-ferrous metals, and renewable energy.

The SAR said that implementing the licensing regime for stablecoin issuers on August 1 would allow the development of real-world use cases. The government also highlighted its partnerships among regulators, law enforcement agencies, and technology providers for the development of DA infrastructures.

Hong Kong has welcomed suggestions from market participants on how the government may test the usage of licensed stablecoins. SAR also announced that Cyberport will establish a funding channel for blockchain and DA, which will offer funding to high-impact applications with the potential to serve as a benchmark for future use cases.

Hong Kong partners with industry and academia for international cooperation

The SAR revealed that Hong Kong is working on nurturing talent through partnerships with industry and academia. The government believes the initiative is positioning Hong Kong as a center of excellence for DA knowledge-sharing and international cooperation through joint research initiatives and global regulatory collaboration. The government also wants to build a sustainable talent pool by cultivating a new generation of entrepreneurs, researchers, and technologists.

The finance secretary, Paul Chan, argued that digital assets hold great development potential that is significant to fintech. He believes that by adopting blockchain technology in Hong Kong, more efficient financial transactions at a lower cost can be realized to bring in more inclusive financial services.

Chan said Policy Statement 2.0 propels Hong Kong’s vision for DA development and showcases the practical use of tokenization through application. According to the finance secretary, the country strives to build more DA ecosystems that will integrate the real economy with social life through a regulatory regime and encouragement to market innovation. He believes it will benefit both the economy and society while consolidating Hong Kong’s leading position as an international financial center.

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