Hong Kong is bolstering its efforts to become Asia’s leading hub for trading digital assets, including a set of new regulations to achieve its ambitions to attract global investors. The move has led to increased competition from the US and other countries in the Asia-Pacific region led by Singapore.
Legal practices in China’s territory have supported lenders with the deployment of pioneering products, including digital bonds and tokenized gold. These are designed to grab the territory slices of this global digital asset market with an estimated market capitalization of 3tn.
“Hong Kong wants to make itself a digital hub. A lot of things are happening,” says Chin-Chong Liew of Hong Kong-based Capital Markets Partner. “Regulators are looking at this and trying to drive growth.”
Asian financial centres are keen to provide investors with an attractive and predictable regulatory framework as cities attack themselves with pushes to respond to digital assets against rivals like Singapore and Dubai.
For example, you could point to your reputation as running a key stock market.
The city’s ambition to become a major venue for digital asset investment and trading also faces increased competition from its major rival, the United States. President Donald Trump’s administration has adopted a crypto-friendly stance with initiatives that include $Trump’s promotion, his own cryptocurrency and a strategic Bitcoin reserve.
In 2023, Hong Kong introduced a regulatory system that allows retail investors to trade cryptocurrencies by requiring city-operated exchanges to apply for regulatory approval. At some point with the license, 24 companies have bid, but 10 have been issued so far, and some have decided to withdraw, including Binance-related exchanges.
According to Hong Kong’s Securities Commission, a new licensing regime for over-the-counter trading and custody services for virtual assets is also in the pipeline, but virtual assets derivative trading targeted at professional investors is also under consideration. Last year, the Hong Kong government rolled out proposed legislation for Stablecoin publishers, following the EU market in the Crypto-Assets Regulation (MICA) regulations regulating Stablecoin.
In February, city Treasury Secretary Paul Chang filed a territorial lawsuit as an attractive venue for digital asset investment, telling the industry conference that “Hong Kong stands out as a market with a consistent, predictable, forward-looking policy and a balanced regulatory framework.”
Some analysts believe the territory is being used as a testing ground that could lead to more liberalization in the use of mainland crypto assets and other digital assets. Hong Kong first outlined its goal of becoming a digital asset hub in 2022, a year after Beijing announced a drastic ban on crypto trading in mainland China.
As Hong Kong advances in its digital asset campaign, Chinese financial institutions tapped cities with the launch of new digital products.
300 million dollars
Digital bonds issued by the telecommunications bank in January
Communications Bank, one of China’s largest national support banks, issued $300 million in digital bonds in Hong Kong in January.
“I think what the (Hong Kong) government is doing here and we’re doing very well in its digital assets field – to make sure Hong Kong is the Pond and.
To enhance the appeal of digital asset trading, the city plans to exempt private equity funds, hedge funds and ultra-rich investment vehicles from paying taxes on profits from cryptocurrency.
“Hong Kong is really interested in the institutional, rich, family offices, sophisticated and massive amounts of money, institutional money flowing,” says Hammond. “(Investors are basically) dealing with everything they’ve come to Hong Kong all the time, but they do that with the benefits of digital ledger technology.”
The lawyers also note that Hong Kong’s regulators continue to protect retail investors who may be seduced by highly volatile cryptocurrencies and other digital assets.
A well-known investigation by Crypto Exchange called FLOW-hong Kong Home in Sambankmanfried’s FTX in 2022, and Crypto Group JPEX on misleading retail investors in 2023, has raised concerns among territorial regulators.
Like traditional financial markets, regulations on Hong Kong’s digital assets will provide more protection and restrictions for unsleashed retail investors, says Rocky Mui, Clifford Chance’s Hong Kong-based partner.
From Taiwan, Jaclintzai, chairman of the Asian Fintech Alliance and technical lawyer, said, “A considerable number of industry players are closely monitoring the development of Hong Kong’s (digital asset) regulations.” She also highlights the city’s digital assets movement as “aggressive.”
At Linklaters, Liew foresees further innovation in its products to meet investor interest and maintain pace. “I have a daily conversation with people who want to (tokenize) not just financial assets,” he explains.
“We’ve seen art, real property. We’ve seen trees. People are talking about tokenization of accounts receivables, or certificates of deposit (forex), or other derivative transactions. There are a lot of ideas.”
