As published on coindesk.com, Tuesday 10 January, 2023.
Christopher Hui first heard of crypto from some friends who were running investment funds and investing in virtual assets. Now, as secretary for Financial Services and the Treasury of Hong Kong (FSTB), he’s developing policy direction for the sector.
During Hong Kong FinTech Week, held in early November, he asked one of his staff whether he should get his first virtual asset. The bureau is piloting a non-fungible token (NFT) offering – one of a few pilots the regulator is rolling out, along with tokenizing green bonds and a central bank digital currency (CDBC), the e-HKD.
While the industry has known for a while that a regulatory framework was incoming, it did not expect the shift in stance. Many of the stalls and panels at FinTech Week were related to the metaverse, and top regulators came out in force to advocate for the city’s comeback as a crypto hub, among which Hui was the most prominent.
He said that he’s most excited about the tokenization of green bonds, which makes what can be a cumbersome process of issuance and investment far more streamlined.
Hong Kong has already issued $10 billion in green bonds in multiple currencies, including the U.S. dollar, euro and renminbi. The pilot will focus on institutions and the whole value chain from issuance to settlement, asset servicing, secondary trading and retention.
Hui also said there are many areas in which technology can really address bottlenecks, shortening the subscription for initial public offerings as an example.
Comparisons are often made between Hong Kong and Singapore and the competition between the two to capture businesses. For Hui, Hong Kong’s “one country, two systems” is its key differentiating feature, referring to how the city is part of China but can organize its own affairs. He pointed to an acceleration programme that allows Hong Kong companies to access industries in China.
Officials often play up the intermediary role that Hong Kong plays between China and the rest of the world. When it comes to virtual assets however, given the ban in China, Hong Kong isn’t playing this role – so what role is it playing?
“We’re able to bring together investments globally,” Hui said. “We can manage and also channel these investments in a well-regulated and also sustainable manner.”
Hui puts this down to a mix of factors citing Hong Kong’s “rule of law, regulation, commercial modus operandi.”
Hui refused to give further details on whether the newly launched Hong Kong Monetary Fund would consider investing into crypto companies. “They are bound by their own mandates and policies,” he said.
CoinDesk has written about companies being unsure about whether Hong Kong can set its own policy when it comes to crypto. Hui is adamant that it can.
Asked whether Beijing had given any reassurances to the regulator on cryptocurrencies specifically, Hui said, “it is more business as usual because after all we are operating one country, two systems. We have our own regulatory systems, we have our own legal systems.”
Over the last month, eyes were on the Party Congress happening across the border, where Xi Jinping’s third term was confirmed. China stocks dipped right after. Political developments have affected investor confidence in Hong Kong.
But Hui didn’t appear to be worried. “Hong Kong is an international financial center, so basically our stock performance reflects overall sentiment,” Hui said. He said that there have been smooth operations in markets. “There's no systemic risk presented,” he said.
He would even welcome crypto companies leaving China. “Hong Kong is a very open place,” Hui said. “Whoever meets our law and requirements, they’re welcome.”
With the incoming VASP regime and consultations, Hui said that the “blocks are ready” to build the ecosystem. “We are more definitely clear in terms of where we stand,” he said, calling it a “more solid footing.”
At the opening of Fintech Week, Hong Kong announced that it was attempting to come back again as a crypto hub. The regulator said that it was open to discussing a crypto futures exchange-traded fund (ETF), and allowing licensed exchanges to serve retail users.
Until a few months ago, there was little indication Hong Kong was considering anything other than a professional investor-only environment. “It’s progressive,” Hui said. “We move with the market, we move with the industry, we are with them in the journey to mitigate risk, manage them and also grow this ecosystem.”
Previous policy direction prevented licensed platforms from offering services to retail traders, but also required all exchanges to secure licenses. Currently, retail traders mostly use unlicensed platforms.
Hong Kong investors are able to invest in U.S. crypto ETFs which likely offer more liquidity than Hong Kong ones would. Still, the announcements show that more options are on the table.
That regulators are more open to discussion is a running theme of Hui’s answers. He refrained from giving more specifics on rules, standards, and requirements that regulators might have for retail investors. “We need to consult the market,” he said.
Though there have already been reports that Hong Kong will open to retail, the rules, standards and timeline are still undecided. He underlined the importance of investor education.