With the first application period now over, the number of applicants represents the first sign of industry interest in Hong Kong's efforts to become a global crypto hub with a new regulatory regime that some fear may be too strict for the sector to remain competitive.
“I think the Hong Kong Securities Commission is very strict,” Tony Tong, co-founder and co-chairman of the Hong Kong Blockchain Association, said after speaking on a panel at the Economist Impact Technology for Change Asia conference this week. “I think it's very good that a lot of companies are coming in to apply for licenses, but it's still unproven that they can benefit from the licenses.”
Tong said he believes Hong Kong remains a competitive location for crypto companies to take advantage of mainland China's developer talent, but the two markets are seen as competing for much of the same business, and comparisons with similar regulations in Singapore have been rife.
Angela Ang, a former regulator at the Monetary Authority of Singapore and now a senior policy adviser at blockchain analytics firm TRM Labs, said she was initially surprised by the relatively low number of applications on Thursday but that it was understandable given the strict requirements.
“One of the things that's unique about Hong Kong is that it requires an external assessor to review it, and I think that filters out companies that lack the budget or commitment,” Ang said.
“Then there are the RO requirements,” she added. “I think this is something that's very specific to Hong Kong. The ROs themselves have to be separately licensed and carry a high level of personal liability.”
Ang noted that, unlike Singapore, there was no clear indication of how many crypto-asset platforms were eligible for the one-year grace period given to those already operating in the city before June 2023. The Monetary Authority of Singapore gave crypto companies one month to notify them that they were incumbents and intended to obtain a license. Bloomberg reported at the time that around 70 companies had formally applied for licenses by the end of 2021, three times the number of applicants so far in Hong Kong.
One possible reason is that Hong Kong regulations could undermine the international competitiveness of Hong Kong-based cryptocurrency companies.
“The restrictions imposed by this framework in part limit the scope of activities and services that can be offered to clients,” said Alessio Quaglini, co-founder and CEO of Hong Kong-based digital asset management firm Hex Trust. “In particular, under the current regime, it is unlikely that VATP will be able to leverage its Hong Kong license to develop a competitive global business.”
06:18
'Scary': Asian cryptocurrency scam deceives tens of thousands of 'brainwashed' victims
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In an October report, blockchain analytics firm Chainalysis said that crypto trading activity in Hong Kong is heavily skewed towards OTC services compared to other markets in the region.
Hong Kong has announced its intention to become a crypto hub at the end of 2022 and lure back some companies that had previously left the city, but questions are being raised about whether Hong Kong's regulations are competitive enough as markets such as Singapore and Japan pursue their own policies.
Henry Chan, founder and CEO of Singapore-based tokenized asset company DigiFT, who previously worked in the financial industry in Hong Kong and mainland China, said Hong Kong and Singapore are both moving in the right direction. DigiFT, which is already licensed in Singapore, plans to get licensed in Hong Kong as well.
“Competition will always exist,” Zhang said. “In my view, it is a healthy competition. Regulators in both jurisdictions embrace the evolution of the financial industry and encourage innovation.”
Alex Manson, head of SC Ventures at Standard Chartered Bank, said he sees crypto regulation converging globally, with ecosystems, not regulators, competing with each other, with no clear jurisdictional advantage in Asia at the moment, he said.
“both [Hong Kong and Singapore] “There's a lot to play with: the startup community, the Web3 players, the capital dedicated to it, the investors putting capital into the asset class,” Munson said. “Regulators are going about it in slightly different ways, but ultimately they're converging. So I wouldn't say one is more dominant than the other.”
Additional reporting by Kelly Le and Xinmei Shen
