During the opening of Hong Kong FinTech Week, several keynote speeches covered the topics of stablecoins, cryptocurrencies and tokenization. The Treasury Department focused primarily on AI, but also covered planned regulatory programs for cryptocurrencies, including tax incentives. Eddie Yue, leader of the Hong Kong Monetary Authority (HKMA), spent a lot of time talking about tokenization, and the Securities and Futures Commission (SFC) focused on cryptocurrencies.
planned regulations
The Ministry of Finance will continue to address planned regulatory issues, including stablecoin regulations scheduled to be announced this year, the second Digital Asset Custody Consultation next year, and a regulatory review of virtual asset (cryptocurrency) over-the-counter (OTC) exchanges in 2025. The outline was explained. .
Tax incentives
In terms of tax benefits, Hong Kong has two broad tax exemptions for private funds under the Unified Funds Regime and family-owned investment holding vehicles (FIHVs) for family offices. However, only a limited number of asset classes have received tax relief so far. There are plans to extend these tax breaks to private credits, virtual assets, and more.
SFC director Dr. Eric Yip pointed out that the average age of people who trade stocks is over 40 years old, while crypto traders are mainly in their 20s. This is one of the driving forces behind the adoption of virtual assets. In 2024, Hong Kong experienced the largest increase in virtual asset trading volume.
New virtual currency exchange license
With the approval of the Hong Kong Virtual Asset Exchange earlier this month, there are now three regulated virtual asset trading platforms (VATP).
There are 14 VATP applications pending, including 11 existing venues that were considered applicants under the June rules. SFC completed on-site inspections of all of them and provided feedback on anticipated changes. Each VATP must accept these change requests and commit to implementation. The SFC then grants a license, but with a limited scope of operation. The SFC plans to award licenses to a small number of deemed applicants this year. To obtain an unrestricted license, VATP must pass another third-party review process.
Dr. Yip emphasized the “same risks, same rules” approach to regulating cryptocurrencies, but also noted the need for regulators to remain vigilant. “Despite all our efforts, if virtual asset liquidity still exists in unregulated spaces and regulated entities cannot operate sustainable business models, why should investors “We need to think carefully about why we would not choose our state-of-the-art regulatory framework,” he said. Dr. Yip.
Project ensemble and tokenization
Dr. Yip mentioned the HKMA tokenization initiative, Project Ensemble, which HKMA CEO Eddie Yue discussed in detail. Apart from tokenizing investments and other financial assets, Project Ensemble also offers a wholesale CBDC that supports interbank settlement of tokenized deposits. Yue discussed some of the use cases announced during the launch of the Project Ensemble sandbox, specifically electronic bill of lading (eBL) tokenization. Global Shipping Business Network (GSBN) has partnered with Ant to tokenize a portion of its eBL hosted on its blockchain network. Below is an excerpt from Yue's talk on tokenization, which he said will be an important part of the 2030 agenda, which is yet to be revealed.
Yue's talk on tokenization
The first area is tokenization, which includes the Finternet idea devised by BIS. If you don't know what Finternet is, please refer to the BIS Chapter 3 Annual Report. What it is is explained there, but first let's be clear that tokenization is not the same as crypto assets. They both utilize blockchain technology, which is pure confusion, but they should not be confused. they are not the same.
Cryptoassets are more speculative in nature, and our stance is to allow them to grow and develop while putting guardrails around them to protect investors. Tokenization, on the other hand, is an innovative way to digitally record the value and ownership of money and assets on a programmable ledger, which allows private businesses and financial institutions to value and trade these assets. It's much easier to do things, and you can add a lot of value to it. A more inclusive ecosystem that benefits everyone, no matter who or where they are.
We believe that tokenization has the potential to create hyper-connectivity between users, data, and services. This is essential to fostering economic progress and requires visionary change in line with continued advances in technology. BIS also recently introduced the FinInternet concept that I am talking about. The concept envisions an Internet-like network of interoperable financial ecosystems that puts individuals and businesses at the center of financial interactions, which is critical.
In fact, many of Finternet's ideas and concepts resonate very closely with the HKMA's tokenization project. We envision a future where tokenization seamlessly integrates with both financial and real-world assets, enabling operations and transactions not possible with today's technology.
Now you may be wondering how something virtual like tokenization or blockchain can connect with real-world tangible assets. Let's take the example of trade finance. Small and medium-sized businesses that import goods from overseas traditionally face mountains of paper documents such as bills of lading and invoices. However, tokenized electronic bills of lading make it very easy to transfer this digital asset via blockchain to financial institutions in exchange for funds.
Unlike just a PDF copy of the bill of lading, this approach allows for real-time shipment tracking on the blockchain, eliminating the need for all paper documents and reducing verification risks. And importantly for banks, the risk of fraud is reduced, and we're actively exploring this through Ensemble Sandbox to resolve friction in trade finance.
If it is successful, we can imagine that tokenization will actually enable many small and medium-sized enterprises to participate in regional and global trade.
Tokenization is also linked to green and sustainable finance, as it has the potential to open new business models and opportunities for companies and investors. For example, tokenized carbon credits traded on the blockchain can improve the transparency and trustworthiness of carbon data and help tackle the double-counting issues plaguing carbon trading today.
Another example can be seen in the EV industry infrastructure that Ant is pioneering. By leveraging real-time data from EV charging stations, the energy generated can be turned into a tokenized revenue stream that can be sold to institutional investors. We are watching this model closely as it has the potential to be replicated in a variety of settings and can help mobilize finance to support the transition to a low-carbon economy.
