At the opening of Hong Kong Fintech Week, influential leaders delved into stablecoins, cryptocurrencies, and the emerging world of tokenization. While the Treasury’s main emphasis was on artificial intelligence, it also presented Hong Kong’s upcoming regulatory programme for crypto, including tax incentives aimed at stimulating growth. Eddie Yue, Chief Executive of the Hong Kong Monetary Authority (HKMA), provided substantial insights into tokenization, while the Securities and Futures Commission (SFC) concentrated its remarks on cryptocurrency.
Regulatory Agenda and Future Roadmap
The Treasury outlined a robust regulatory framework, set to unfold over the coming years. By the end of 2024, new stablecoin regulations will be introduced, followed by a second consultation on digital asset custody in 2025, alongside a comprehensive review of over-the-counter (OTC) trading venues for virtual assets. These efforts underscore Hong Kong’s commitment to maintaining a stable and secure environment for digital asset trading.
Expanding Tax Incentives
Addressing tax incentives, the Treasury noted Hong Kong’s existing exemptions for privately offered funds under the unified fund regime and for family-owned investment holding vehicles (FIHVs). Although only limited asset classes qualify for tax breaks currently, there are plans to expand these to include private credit and virtual assets, aiming to attract a broader range of investments.
Demographics and Market Trends in Crypto
Dr Eric Yip, director at the SFC, pointed out a clear generational divide in financial markets. Traditional stock investors average over 40 years of age, while the majority of crypto traders are in their twenties—a fact encouraging the embrace of virtual assets. Hong Kong has seen significant growth in virtual asset transaction volumes in 2024, reflecting this demographic shift.
New Licensing Structure for Crypto Exchanges
In regulatory developments, the SFC recently granted a third licence to a virtual asset trading platform (VATP), with an additional fourteen applications in the pipeline. These include eleven existing exchanges that must now meet new standards set by the SFC in June. Each applicant is undergoing inspections and implementing necessary changes before gaining a restricted operational licence, with plans for additional oversight reviews required for an unrestricted licence.
Dr Yip reaffirmed Hong Kong’s “same risks, same rules” philosophy towards crypto regulation but emphasised adaptability, noting, “If virtual asset liquidity still resides in unregulated venues after all our efforts, and regulated entities cannot operate a sustainable business model, then we need to reflect on why investors don’t pick our state-of-the-art regulatory framework.”
Project Ensemble: Tokenization’s Expanding Role
HKMA’s Project Ensemble took centre stage, with Eddie Yue articulating the HKMA’s long-term vision. Beyond tokenizing financial assets, Project Ensemble incorporates a wholesale central bank digital currency (CBDC) to facilitate interbank settlements of tokenized deposits. One prominent use case includes tokenized electronic bills of lading (eBL) in collaboration with the Global Shipping Business Network (GSBN) and Ant Group, aiming to streamline trade finance with real-time shipment tracking.
In his keynote, Mr Yue highlighted tokenization’s transformative potential, contrasting it with speculative crypto assets. He elaborated on how tokenization can create an inclusive financial ecosystem, enabling seamless ownership and value transfer across users and corporations alike.
Mr Yue cited examples across industries, such as trade finance, where tokenized eBLs can simplify documentation for SMEs, and green finance, where tokenized carbon credits can ensure transparency and accuracy in carbon trading. He also noted initiatives in the electric vehicle (EV) sector, where real-time data from charging stations could transform energy usage into tokenized revenue streams—a model he believes can be replicated broadly, especially to support the transition to a low-carbon economy.
As Hong Kong positions itself at the forefront of fintech innovation, its regulatory and technological advancements reflect a vision of hyperconnected, tokenized finance that could reshape global economic interactions in the coming decade.
