An advertisement of Bitcoin, one of the cryptocurrencies, is displayed on a building in Hong Kong, on Nov. 18, 2021. (AP Photo/Kin Cheung, File)
HONG KONG: With the start of a consultation on legalising crypto trading by retail investors Hong Kong is seeking 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 from the government yesterday.
The city invited global crypto exchanges to explore business opportunities, adding that work towards a new virtual asset licensing 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 and thoughts on investor exposure,” said Financial Secretary Paul Chan.
He added: “These will include our pilot projects to embrace the technological benefits and financial innovations.”
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.
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$8mil (US$1mil or RM4.73mil).
In a Bloomberg Television interview, Yvonne Szeto, vice-president at Worldpay from FIS, said that a consistent framework for crypto regulations is essential and key to growing institutional and retail adoption of digital assets at scale.
She added that she welcomes the direction Hong Kong is moving in.
In yesterday’s statement, Hong Kong also said it’s willing to review “property rights for tokenised 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.
Regulators globally are grappling with how to oversee the volatile digital asset sector, which is picking up the pieces of a US$2 trillion (RM9.4 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 Ltd 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% 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 Inc.
The city’s overall global ranking for crypto adoption fell to 46 in 2022 from 39 in 2021. — Bloomberg
