Hong Kong plans to target tokenization with new regulatory requirements, officials say

Hong Kong is expected to issue more policy papers and circulars on tokenized assets, stablecoins and cryptocurrency trading, as the city continues efforts to create a web3 hub in Asia.

Christopher Hui, Secretary for Hong Kong’s Financial Services and the Treasury, said today at Hong Kong Fintech Week that the government continues to encourage web3 innovation and the recent crackdowns on the JPEX crypto exchange have not damaged its resolve.

“We have been asked many times whether JPEX will affect our determination to grow the web3 market,” Hui said. “The answer is a clear no.”

Hui added that the Securities and Futures Commission will soon release circulars on intermediaries engaging in tokenized securities-related activities and tokenization of SFC-authorized investment products.

Another area the regulators are focusing on is exploring how to expand their remit to cover buying and selling of virtual assets beyond trades taking place on trading platforms, according to Hui.

Meanwhile, the Hong Kong Monetary Authority and the Financial Services and the Treasury Bureau will soon issue another joint consultation on the regulatory regime for stablecoin issuers, Hui added.

New possibilities for tokenization

Eddie Yue, chief executive of the HKMA, said today at the event that use cases such as tokenized bonds have already gone beyond the proof of concept stage and have been adopted in real transactions.

“In fact, we, ourselves, assisted the government to issue the world’s first-ever tokenized government green bond earlier this year in order to demonstrate the compatibility of Hong Kong’s legal and regulatory environment with this very new issuance format,” Yue said.

Yue added that the government is already discussing with the industry “to explore the next tokenized issuance in order to open up new possibilities.”

“Moving forward, we can expect a rise in the tokenization of differences in order to support the gradual adoption of tokenization,” Yue said. “I will also expect that there will be increased use of blockchain-based payment methods, including things like stablecoin wallets or tokenized deposits offered by the banks.”

New risks

Julia Leung, chief executive officer of the SFC, also said that the regulator plans to issue two circulars about tokenization later today.

One circular will be on “identifying the risks with this new technology” and “what regulators expect from intermediaries when they are doing the due diligence, doing their transfer or primary issuance of it,” Leung said.

Leung added that another pending circular will focus on the SFC’s requirements for issuing authorized funds. “There will be additional safeguards — all the expectations that we have on it.”

“It is all about making sure that the assets are being safely custody transferred and the ownership records are there because this is, after all, a new technology,” Leung said.

“While we are supportive of the industry, experimenting, making more of these use cases, we also see new risks associated with it in the innovative technology, particularly in the transfer, the ownership and the recordkeeping of these tokens.”

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