Hong Kong upholds risk-based crypto rules amid tokenization push

Hong Kong Finance Secretary Paul Chan, speaking at a global forum in Switzerland, said the city is crafting smart regulations designed to protect users while encouraging innovation in digital tools.

Chan explained that the region follows the principle of “same activity, same risk, same regulation,” meaning companies are regulated based on the risks of their activities rather than the technology they use. In other words, activities with similar risks—whether via apps, computers, or blockchain—should face similar rules.

Apart from licensing trading platforms, Paul Chan said the city is testing new approaches in partnership with the Hong Kong Monetary Authority (HKMA), the city’s major financial regulator.

One such trial involves tokenized deposits or digital assets, in which fiat money can be turned into digital tokens that can be sent anywhere online quickly and securely. This could help people and companies to transact more quickly and efficiently. Hong Kong is also likely to issue stablecoin licenses in the next few months. Stablecoins are a form of digital currency pegged to a stable value, typically a fiat currency like the US dollar. 

The licensing of stablecoins requires these issuers to meet safety and transparency standards to safeguard users’ funds. The city is also pursuing tokenized green bond issuance. Since 2023, the city has sold three batches of green bonds worth around $2.1 billion, enabling investors to support green initiatives while leveraging digital platforms, such as blockchains, to register and trade their bonds. 

Hong Kong uses tokenization to improve finance

Hong Kong leaders feel tokenization can help grow the city’s economy. Rather than waiting days for money or assets to be sent from one location to another, tokenization can make such transfers almost instantaneous. 

This can reduce costs, increase transaction speed, and make financial services more accessible to a broader range of people. Tokenization also featured prominently in October last year, after a Hong Kong part of China Merchants Bank (CMB) transformed one of the largest money market funds in the region, valued at $3.8 billion, into digital tokens on the BNB Chain blockchain. 

That meant that what the fund held was embodied in digital tokens that could be traded on the internet, but that nevertheless possess true financial value. This concept, called DART (Digital Asset and Registered Token), encompasses more than 40 initiatives to improve the functionality and efficiency of Hong Kong’s tokenization ecosystem for businesses and consumers over five years. 

Hong Kong works with other countries on digital finance

Hong Kong’s work does not occur in a bubble. In November 2022, Brazilian digital bank Banco Inter completed a test of blockchain technology for payments and trade finance between Hong Kong and Brazil. The experiment involved Chainlink, the Central Bank of Brazil, and the Hong Kong Monetary Authority. 

The pilot tested new methods to improve international transactions using digital tokens and blockchain technology. In global business, trade finance helps companies buy and sell goods securely across borders. The Brazil–Hong Kong trial demonstrated that tokenization and blockchain can accelerate and improve the efficiency of cross-border financial settlements.

Brazil’s trading relationship with Hong Kong is extensive; the two countries are members of the BRICS bloc, a grouping of developing countries that facilitates trade and cooperation. The two countries working together on digital finance projects illustrate how tokenization could benefit many countries and cities worldwide.