Hong Kong SFC Chief Highlights Crypto Trading as a Crucial Component of the Virtual Asset Ecosystem

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The CEO of Hong Kong's Securities and Futures Commission (SFC), Julia Leung Fung-yee, emphasised the significance of crypto trading within the virtual asset ecosystem during a recent speech. Leung acknowledged Hong Kong's recognition of the importance of crypto trading and its openness to adopting related technologies in the financial services sector, such as bond tokenisation and investment funds.

Leung also discussed how Hong Kong's positive web3 regulation played a crucial role in developing its virtual asset ecosystem following the collapse of the crypto exchange FTX in November 2022. She highlighted implementing a new licensing system for virtual asset providers to protect investors while considering the risks financial institutions face. According to Leung, incorporating virtual asset providers into the regulatory system is essential for fostering innovation and strengthening market trust, particularly after FTX's bankruptcy.

In response to the FTX collapse, Hong Kong took measures to mitigate regulatory risks associated with centralised exchanges. In December 2022, the legislative council included virtual asset service providers in the same legislation governing traditional financial institutions. Subsequently, the city's financial regulator introduced a new regulatory framework for cryptocurrencies on June 1.

Under the new rules, digital asset exchanges seeking to establish businesses in Hong Kong must adhere to strict Anti-Money Laundering guidelines and investor protection laws. Importantly, the regulations also enable retail investors to trade virtual assets, expanding access beyond professional investors and traders with substantial bankable assets.

Moreover, Hong Kong has been pressing banks, including HSBC, Standard Chartered, and Bank of China, to engage with crypto clients. The Hong Kong Monetary Authority (HKMA) recently questioned these banks' reluctance to accept crypto exchanges as clients. The HKMA emphasised that due diligence on potential customers should not create undue burdens, especially for those seeking opportunities by setting up offices in Hong Kong.

These efforts by Hong Kong to establish itself as a crypto-friendly hub have yielded positive results. More than 150 web3 companies have established operations in Hong Kong's Cyberport over the past year. The government allocated 50 million yuan ($7 million USD) earlier this year to expedite the development of web3. Managed by a government-owned subsidiary, Cyberport hosts a total of 1,900 enterprises, according to Hong Kong's Financial Secretary Paul Chan Mo-po.

Hong Kong's proactive approach to crypto regulation and its welcoming environment have attracted numerous crypto firms, signalling the city's commitment to fostering innovation and becoming a prominent player in the digital asset ecosystem.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash