Hong Kong Announces Plans to Strengthen Digital Asset Regulation, Aligning with Southeast Asian Peers

Hong Kong joins other Southeast Asian jurisdictions in a move to provide regulatory clarity for the digital asset sector. Earlier this week, Thailand’s Securities and Exchange Commission (SEC) said it would establish what it calls a “Digital Asset Regulatory Sandbox”.

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Here, exchanges, brokers and advisors can test crypto-related products and services in a controlled setting. Singapore has also experimented with its own sandbox and has even introduced crypto-related changes to its Payment Services Act.  

Now it’s Hong Kong’s turn. During the Foresight 2024 conference in Hong Kong, David Chiu, a HK Legislative Council member, said that the city is ready to attract technology talent, improve digital infrastructure while also strengthening regulatory oversight.

Chiu said this move is important for the industry to keep growing.

The digital asset industry has made significant progress in the past few years, but we are still in a very early stage. We should establish a sound exchange system and soon introduce legislation related to stablecoins.

David Chiu, HK Legislative Council member

Hong Kong Introduces Its Own Sandbox

The development comes as Hong Kong also moves along with its own sandbox for stablecoins. After ending its consultation on stablecoin regulations, the Hong Kong Monetary Authority (HKMA) revealed the initial participants for its stablecoin issuer sandbox.

Apart from a large Chinese e-commerce vendor and a HK fintech firm, there’s also a group comprising Standard Chartered Bank, Animoca Brands, and Hong Kong Telecommunications taking part in the trial. These participants will test their operational plans and engage with regulators, but are restricted from public fundraising related to sandbox activities.

HKMA Deputy CEO Darryl Chan commented that the agency’s focus is on identifying practical stablecoin applications that solve economic issues and drive value in the economy and financial sector.

A key consideration is the need to propose concrete use cases for the stablecoin to help address pain points in economic activities and create value and new opportunities for our economy and financial services.

Darryl Chan, HKMA Deputy CEO

Hong Kong ETFs Attract Increasing Investor Interest

Hong Kong appears to be competing with Singapore as countries across Asia increasingly embrace crypto. The approval of Ethereum and Bitcoin Spot exchange-traded funds (ETFs) earlier this year certainly has raised Hong Kong’s profile in the industry.

While the fund flows pale in comparison to those of US funds, they seem to be getting more interest over time. Last week saw the highest volumes flowing into the funds since their inception in May.

Holding Bitcoin via a fund seems to catch on globally, as CNA reported earlier, more than 5% of all BTC is now being held in ETFs, while the two largest funds, the US-based IBIT and FBTC, hold 2.5% of BTC just between the two funds.

This is despite investors from mainland China not having official access to the Hong Kong funds.