Hong Kong to stoke tokenisation of real-world assets and stablecoins to build web3 hub

Hong Kong’s financial authorities plan to release new guidelines for the tokenisation of securities and investment offerings, Christopher Hui, the secretary for Financial Services and the Treasury said during his address at a tech conference on Thursday.

Hui also sought to assuage concerns that the investigation of JPEX, a crypto exchange suspected of operating illegally, would derail regulators’ efforts to support fintech.

“The answer is a clear no,” Hui said at Hong Kong Fintech Week.

Hui’s speech came at a fraught moment for crypto in Hong Kong. On the one hand, authorities are determined to recast the vibrant financial centre as an ideal hub for web3 innovation. On the other, scandals such as the JPEX case are testing the resolve of regulators to clean up an industry punctuated by spectacular scandals.

There have already been 36 arrests and an estimated $213 million in customer losses in the JPEX matter.

Regulatory limits

Regulatory diligence, Hui said, remains paramount as Hong Kong renews its efforts to cement itself as a nexus for web3 and fintech innovation.

“The government is also working with different parties to consider expanding the regulatory limit to cover buying and selling of virtual assets beyond trades taking place on regulated trading platforms,” he said.

At the same time, the Hong Kong Monetary Authority is poised to co-launch a consultation on stablecoins. “This is something that is much needed,” Hui said.

Despite lingering scepticism by investors about the future of digital assets in the semi-autonomous metropolis, there is an air of optimism among the city’s political and regulatory leaders about its potential as a cryptocurrency hub.

John Lee, Hong Kong’s Chief Executive, extolled the city’s attractions for fintech entities, including its position as a gateway between China and international markets.

“We are one of the world’s leading financial centres and China’s major financial centre,” Lee said.

Not everyone agrees.

Decamping to Dubai

Hong Kong’s role as a global financial hub has dimmed in recent years as companies fled the city amid a crackdown on free speech by Beijing and its zero-Covid policies, which were lifted earlier this year.

Even web3 companies formerly based in Beijing and Shanghai chose to move to Singapore or Dubai instead of to Hong Kong after China banned Bitcoin mining and restricted speculation in the digital assets markets.

At the conference, there was little mention of Hong Kong’s own CBDC project, the e-HKD. But the digital yuan’s role in fostering closer financial integration between China and Hong Kong featured prominently in Hui’s speech.

He believes the digital yuan— officially known as the e-CNY — could help overcome the challenges faced by travellers between Hong Kong and the mainland.

The beauty of digital yuan

Aside from hard cash — and getting change in some places is becoming harder and harder — it’s a pain for visitors to mainland China to access payment methods. Mastercard and Visa usage is not common, and users generally require a local bank account to use AliPay or WeChat.

“The beauty of having [digital yuan] hard wallets is that you don’t need a bank account in China, you don’t need a phone number in China, and neither do you need an internet connection in China because after all, it is hard wallets,” he explained.

Hui envisions a seamless use of e-CNY by Mainland visitors in Hong Kong’s retail spaces, hinting at a growing economic integration between the two regions.

Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, or HKMA, said CBDCs might bridge financial engagements with nations in ASEAN, which is the Association of Southeast Asian Nations.

The HKMA is one of the agencies working on mBridge, a project that aims to facilitate cross-border payments compatible with multiple different CBDCs.

Yue forecasted a surge in blockchain innovation, particularly in tokenisation, which could change the way businesses settle international trade contracts and facilitate cross-border payments.

Tokenised instruments

Yue also shared his views on the nascent realm of tokenised financial instruments, including the issuance of the world’s first-ever tokenised government green bond by Hong Kong earlier this year.

This endeavour, he believes, demonstrates the compatibility of Hong Kong’s legal and regulatory landscape with novel financial technologies.

“CBDCs can usefully serve as a foundation layer, providing stability and perhaps facilitating the transfers between different wallets, or between different payment methods, or being an interface between the traditional and blockchain-based payment platforms,” Yue said.

Despite the promising trajectory, challenges loom large.

Questions surround the legal definition of tokenised securities, the practicalities of delivery versus payment for such instruments, and intricate legal and interoperability considerations.

Discussion on these topics will be ongoing in the central bank community, Yue said.

Got a Hong Kong crypto story? Contact me at callan@dlnews.com