Christopher Hui first heard of crypto from some friends who were running investment funds and investing in virtual assets. Now, as secretary for Financial Services and the Treasury of Hong Kong (FSTB), he’s developing policy direction for the sector.
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During Hong Kong FinTech Week, held in early November, he asked one of his staff whether he should get his first virtual asset. The bureau is piloting a non-fungible token (NFT) offering – one of a few pilots the regulator is rolling out, along with tokenizing green bonds and a central bank digital currency (CDBC), the e-HKD.
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While the industry has known for a while that a regulatory framework was incoming, it did not expect the shift in stance. Many of the stalls and panels at FinTech Week were related to the metaverse, and top regulators came out in force to advocate for the city’s comeback as a crypto hub, among which Hui was the most prominent.
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Crypto currently falls under several regulators in Hong Kong. The Hong Kong Monetary Authority is looking into stablecoins, the Securities and Futures Commission takes on enforcement responsibilities.
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The department Hui heads, FSTB, lays down the more macro approach to regulation. The approach it seems to be taking is to place crypto within financial regulation, and signal an opening of areas up for discussion such as allowing retail investors under the incoming regulatory framework, which was previously a no.
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Hui’s stature and his appearance at Hong Kong FinTech Week panels speaking on crypto give clear signals that Hong Kong’s regulators view it as part of the city’s economic future.
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Hui reiterated views voiced by other high profile figures in Hong Kong’s regulatory bodies, who see crypto as fitting into mainstream finance. When asked what he thinks about crypto’s founding ideals, Hui said he considers crypto to be more an investment instrument than a bid for freedom from fiat currency.
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He seemed tentatively optimistic about its applications. “Potentially, it is a transformation to how society and economy work,” he said of the underlying technology in an interview with CoinDesk, adding that “it’s not built overnight.”
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Most important to him are the use cases: “My inclination is to see through these investments and look at what’s behind them, what’s underlying them,” he said.
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He said that he’s most excited about the tokenization of green bonds, which makes what can be a cumbersome process of issuance and investment far more streamlined.
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Hong Kong has already issued $10 billion in green bonds in multiple currencies, including the U.S. dollar, euro and renminbi. The pilot will focus on institutions and the whole value chain from issuance to settlement, asset servicing, secondary trading and retention.
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Hui also said there are many areas in which technology can really address bottlenecks, shortening the subscription for initial public offerings as an example.
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Comparisons are often made between Hong Kong and Singapore and the competition between the two to capture businesses. For Hui, Hong Kong’s “one country, two systems” is its key differentiating feature, referring to how the city is part of China but can organize its own affairs. He pointed to an acceleration programme that allows Hong Kong companies to access industries in China.
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The blocks are ready
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Officials often play up the intermediary role that Hong Kong plays between China and the rest of the world. When it comes to virtual assets however, given the ban in China, Hong Kong isn’t playing this role – so what role is it playing?
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“We’re able to bring together investments globally,” Hui said. “We can manage and also channel these investments in a well-regulated and also sustainable manner.”
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He underscored the credibility that he said Hong Kong has as a gateway to China and its linkage to the international community.
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Hui puts this down to a mix of factors citing Hong Kong’s “rule of law, regulation, commercial modus operandi.”
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Hui refused to give further details on whether the newly launched Hong Kong Monetary Fund would consider investing into crypto companies. “They are bound by their own mandates and policies,” he said.
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CoinDesk has written about companies being unsure about whether Hong Kong can set its own policy when it comes to crypto. Hui is adamant that it can.
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Asked whether Beijing had given any reassurances to the regulator on cryptocurrencies specifically, Hui said, “it is more business as usual because after all we are operating one country, two systems. We have our own regulatory systems, we have our own legal systems.”
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Over the last month, eyes were on the Party Congress happening across the border, where Xi Jinping’s third term was confirmed. China stocks dipped right after. Political developments have affected investor confidence in Hong Kong.
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But Hui didn’t appear to be worried. “Hong Kong is an international financial center, so basically our stock performance reflects overall sentiment,” Hui said. He said that there have been smooth operations in markets. “There's no systemic risk presented,” he said.
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He would even welcome crypto companies leaving China. “Hong Kong is a very open place,” Hui said. “Whoever meets our law and requirements, they’re welcome.”
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With the incoming VASP regime and consultations, Hui said that the “blocks are ready” to build the ecosystem. “We are more definitely clear in terms of where we stand,” he said, calling it a “more solid footing.”
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Moving with the market
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At the opening of Fintech Week, Hong Kong announced that it was attempting to come back again as a crypto hub. The regulator said that it was open to discussing a crypto futures exchange-traded fund (ETF), and allowing licensed exchanges to serve retail users.
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Until a few months ago, there was little indication Hong Kong was considering anything other than a professional investor-only environment. “It’s progressive,” Hui said. “We move with the market, we move with the industry, we are with them in the journey to mitigate risk, manage them and also grow this ecosystem.”
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Previous policy direction prevented licensed platforms from offering services to retail traders, but also required all exchanges to secure licenses. Currently, retail traders mostly use unlicensed platforms.
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Hong Kong investors are able to invest in U.S. crypto ETFs which likely offer more liquidity than Hong Kong ones would. Still, the announcements show that more options are on the table.
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That regulators are more open to discussion is a running theme of Hui’s answers. He refrained from giving more specifics on rules, standards, and requirements that regulators might have for retail investors. “We need to consult the market,” he said.
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Though there have already been reports that Hong Kong will open to retail, the rules, standards and timeline are still undecided. He underlined the importance of investor education.
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Hong Kong’s attempt to come back as a crypto hub comes in a year of market turmoil, which saw Terra’s crash, VC funds’ liquidation and jurisdictions like Singapore tightening regulation over crypto.
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“It doesn’t come out of nowhere,” Hui said, about the timing. He pointed to the experience Hong Kong accumulated through introducing an opt-in system for virtual asset exchanges to get certain licenses which allow them to deal in securities and provide automated trading services, and also to fund managers who are dealing with virtual assets.
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This crypto winter may have made people more discerning about what works and what doesn’t, he said. “It’s the right time to take stock.”
