Hong Kong's approach to virtual assets (VAs) is centered on risk-based, prudent regulation. Since the announcement of the "Policy Statement on the Development of Virtual Assets in Hong Kong" in October 2022, the VA market has evolved rapidly. The Securities and Futures Commission (SFC) has established a licensing system and regulatory requirements for Virtual Asset Service Providers (VASPs), which commenced operation on June 1 last year. Currently, two licensed VA trading platforms, through licence upgrades, are able to offer Bitcoin (BTC) and Ethereum (ETH) trading services to retail investors. Licensed platforms are subject to rigorous regulation by the SFC to provide substantial protection for investors.

Enhancing Measures on VA Regulation

As the transitional period for the VASP licensing system enters its final stage, we are gradually enhancing measures on VA regulation. With clearer regulatory and market development standards emerging at the international level, investors trading VA on licensed platforms should enjoy enhanced protection and have elevated confidence in the market. We will continue to use a multi-pronged approach comprising comprehensive public education, enhancing enforcement and timely information dissemination, to facilitate the robust and responsible development of the market.

Regulatory Framework for Stablecoin Issuers

Together with the Hong Kong Monetary Authority (HKMA), we are consulting the public on the legislative proposal on a regulatory regime for stablecoin issuers. The proposed regulatory system requires all qualified fiat-referenced stablecoin (FRS) issuers to obtain a licence issued by the HKMA. Regulating FRS issuers in a risk-based manner, and providing transparent and suitable guardrails, the system seeks to manage the potential monetary and financial stability risks. The HKMA will also introduce a “sandbox” arrangement, conveying regulatory expectations and providing compliance guidance to issuers planning to issue FRS in Hong Kong. At the same time, the arrangement will gather their opinions on the proposed regulatory requirements, facilitating the implementation of subsequent regulatory regimes, and ensuring that the system meets the regulatory objectives.

Conclusion

Hong Kong's approach to VAs focuses on risk-based, prudent regulation. By adhering to the principle of “same activity, same risk, same regulation” and implementing comprehensive regulation, we seek to address the risks associated with VA activities in terms of investor protection and money laundering and terrorist financing (ML/TF). We firmly believe that encouraging financial innovation is only possible through providing a robust and transparent regulatory environment.