The collapse of the FTX served as a wake-up call for regulators in Hong Kong. Julia Leung Fung-yee, CEO of the Securities and Futures Commission (SFC), initiated a rapid response to the crisis by incorporating virtual asset service providers into the existing financial, legislative framework.
During a recent speech, while addressing Hong Kong’s embrace of web3 regulation, Leung noted that the FTX bankruptcy significantly impacted jurisdictions that had previously been open to cryptocurrencies. She emphasized that the SFC’s response was not intended to discourage digital assets but to establish a transparent and predictable regulatory environment that promotes investor protection and manages risk for financial institutions.
A new chapter in virtual asset regulation
The SFC introduced a licensing system regulating all public interaction with virtual assets. Until recently, trading in digital assets was limited to professional investors with substantial financial assets. The new scheme has broadened this, allowing retail investors to participate in the digital asset market.
Leung emphasized the importance of cryptocurrency trading within the virtual asset ecosystem and expressed openness to the application of related technologies, such as bond tokenization and investment funds. Despite the turbulent market conditions, she acknowledged that the development of a robust virtual asset ecosystem is a long-term project.
A distinct approach from mainland China
Leung also highlighted the contrast between Hong Kong’s stance and the cryptocurrency ban in mainland China, pointing out that the new licensing system exemplifies the “one country, two systems” policy. This approach has positioned Hong Kong as a distinct and welcoming environment for crypto businesses.
The local government has set up the Cyberport, a digital hub aimed at promoting innovation. This initiative has attracted over 150 Web3 firms in the past year, aided by a government investment of 50 million yuan ($7 million) to accelerate the development of Web3.
The evolving regulatory framework in Hong Kong represents an adaptive response to the rapid changes in the virtual asset market. As the virtual asset fintech community continues to grow in the region, Hong Kong’s role in this emerging field is likely to become increasingly significant.