Policy Declaration on the Development of Virtual Assets in Hong Kong
This Declaration is issued by the Financial Affairs and Treasury Bureau (the "Treasury Bureau") to clarify the government's policy stance and guidelines on the booming virtual asset industry and ecosystem in Hong Kong.
Vision and policy
2. As an international financial center, Hong Kong holds an open and inclusive attitude towards global innovators engaged in virtual asset business. We very much appreciate these innovators' efforts in the field of distributed classification technology ("DLT") and the development of new financial innovations that are more cost-effective, inclusive, flexible and epoch-making. Seeing the attraction of virtual assets to global investors and the growing recognition in financial innovation, plus the future opportunities brought by virtual assets entering the Web 3.0 and the meta universe, we believe that virtual assets have become indispensable in the market. The government is working with financial regulators to create a convenient environment to promote the sustainable and responsible development of Hong Kong's virtual asset industry. Considering the evolving nature and innovative mode of virtual assets, we will cooperate in the legal and regulatory systems to provide a convenient environment.
3. We agree that DLT and Web 3.0 have the potential to become the future development trend of finance and commerce. As long as they are properly regulated, these technologies will be able to improve efficiency and transparency, thereby reducing or solving current problems in settlement and payment. Hong Kong has a thriving virtual asset ecosystem, which can be presented through the issuance of heterogeneous tokens ("NFT") in our market, the development of the meta universe, and the adoption of DLT activities in trade finance. If we focus on more other uses of virtual assets, such as art and collection trade, token of antique objects, or token of different types of products (such as debt securities) from the perspective of financial innovation, we will certainly be able to welcome greater opportunities.
4. With reference to the development and application of other technologies in the past, it is both organic and dangerous to develop new fields. To achieve the above vision cannot be achieved in one step. We will adopt the principle of "the same business, the same risk and the same rules", and set out the required rules in due time. On the one hand, we will enable virtual asset innovation to develop vigorously and sustainably in Hong Kong, and on the other hand, we will ensure that we can mitigate and manage the actual and potential risks caused by financial stability, consumer protection and combating money laundering and terrorist financing in accordance with international standards. Hong Kong, as an international financial center, has a vast array of virtual assets. We also need to closely monitor the evolving and innovative regulatory developments in the world and take them into account when formulating our regulatory system.
5. In the past few years, the government and regulatory agencies have formulated a comprehensive regulatory framework for virtual assets based on the principle of "the same business, the same risk, and the same rules". We have introduced a regulatory system to license virtual asset exchanges in the way of "selective participation". In terms of asset management, the regulator issued guidelines on the management of virtual asset funds and discretionary accounts. In addition, regulators provide guidance to banks and financial institutions on the distribution of virtual asset related products, virtual asset transactions or the provision of advice on virtual assets. The regulatory system has also been widely supported by the industry. We believe that a consistent, clear and clear regulatory framework will help to lay a solid foundation for financial innovation and technological development brought about by the rapid development of global virtual assets.
6. In order to further implement the above comprehensive regulatory framework, we are committed to establishing a licensing system for virtual asset service providers in the near future. Under the new system, the virtual asset exchange will, like the current traditional financial institutions, comply with the provisions on combating money laundering and terrorist fund raising and protecting investors, which will help the licensed virtual asset exchange establish its status and credibility and enable it to contact more investors in the Hong Kong market. Another advantage is that financial intermediaries and banks will be able to cooperate with licensed peers from the virtual asset sector and provide customers with virtual asset trading services if they meet relevant regulatory conditions. From the perspective of the virtual asset exchange, the licensing system allows them to open up new distribution channels in Hong Kong to take advantage of Hong Kong's huge asset and wealth management market worth more than $45 trillion. While stepping up preparations for the new licensing system, we are also willing to contact the global virtual asset industry and invite relevant exchanges to explore business opportunities in Hong Kong.
Investors' exposure to virtual assets
7. We have noticed that global investors (whether institutional investors or retail investors) are increasingly accepting virtual assets as assets that can be used for investment allocation. The Securities and Futures Commission ("SFC") will conduct public consultation on the appropriateness of retail investors' trading in virtual assets under the new licensing system. We also note that retail investors in other markets can also access virtual assets through virtual asset related products such as exchange traded products. The government welcomes the possibility of introducing a virtual asset exchange traded fund ("ETF") in Hong Kong, and the CSRC will soon issue a circular on this issue. In addition, the launch of these products in Hong Kong can connect the virtual asset industry with traditional financial institutions and provide investors with well-designed products, thus promoting the overall development of the industry in the Hong Kong market. Nevertheless, we will maintain a cautious attitude towards the risks of retail investors, strengthen investor education, and ensure that there are appropriate regulatory arrangements.
Property rights of token assets
8. We note that virtual assets and traditional assets have different characteristics, which may not be fully applicable to the categories or definitions of Hong Kong's current private property laws. In order to promote the adoption of virtual assets and strengthen investor protection, the government is open to reviewing the legitimacy of the property rights of token assets and smart contracts in the future, so as to provide a sound legal basis for the property rights of token assets.
9. Stable currency is our other focus. The stable currency is said to be able to maintain the stability of value, but its use is increasing. For example, as a transaction medium of cryptocurrency and fiat currency, it also has the potential to establish links with traditional financial markets (such as payment systems). Drawing on the experience of the recent crisis in the virtual asset market (the cold winter of encryption), there is an international consensus that appropriate supervision should be made on different categories of stable currencies, including governance, stability and redemption mechanisms. In this regard, the Hong Kong Monetary Authority ("HKMA") had issued a discussion paper on relevant issues early this year, inviting relevant persons to formulate a risk-based, proportionate and flexible regulatory system for regulating activities involving stable currencies for payment purposes, and would later release the consultation results and the next step.
10. The government and regulators are studying and launching the following pilot plans to test the technical benefits of virtual assets and try to further apply relevant technologies to the financial market. From these pilot plans, we are determined to work together with the global virtual asset industry to explore the way of financial innovation.
(a) Issuing NFT for Hong Kong FinTech Week in 2022: a concept verification project for our interaction with FinTech and Web3 communities;
(b) Tokenization of green bonds: let government green bonds issue tokens for institutional investors to subscribe;
(c) Digital Hong Kong Dollar: It can serve as the "backbone" and pillar connecting fiat currency and virtual assets, and provide the confidence needed to promote more innovation.
Summary and outlook
11. Hong Kong has a world-class financial infrastructure, legal and regulatory system. We are committed to promoting the sustainable development of various financial services across the virtual asset value chain, including virtual asset issuance, token, trading and payment platforms, finance and asset management, and custody. The government is ready to welcome the future development of finance and commerce, and support the technological development and social and economic benefits behind virtual assets. We welcome the convergence of financial technology and virtual asset communities and talents in Hong Kong. We will implement the vision contained in this policy declaration through convenient policies, integrated and balanced supervision, risk based restrictions, and various pilot plans. The government sincerely invites the global virtual asset industry to work with us to leverage Hong Kong's position as an international financial center, comply with the best international standards and practices, and unleash the potential of financial innovation in a clear, flexible and convenient regulatory environment.
October 31, 2002
The Government of the Hong Kong Special Administrative Region
Financial Services and Treasury Bureau
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