Hong Kong’s digital asset ecosystem needs stronger guardrails and more education to protect investors, says HKMA CEO Eddie Yue

‘Those guardrails are important in order to provide the right controls on things like security, investor protection and anti-money-laundering risks,’ says HKMA CEO
Cryptocurrency related crimes are on the rise in Hong Kong, which saw 2,336 cryptocurrency-related complaints last year – a 67 per cent rise from a year ago

Hong Kong Monetary Authority (HKMA)

Mia Castagnone

Published: 5:00pm, 6 Oct 2023

Why you can trust SCMP

The development of Hong Kong’s digital asset ecosystem will need stronger guardrails and more public education to protect investors, the Hong Kong Monetary Authority’s (HKMA) CEO Eddie Yue Wai-man told the Post in an interview, as the city battles to limit the damage from the recent implosion of a cryptocurrency exchange suspected to have affected 2,305 victims who lost about HK$1.43 billion (US$182 million) of investments.

“Those guardrails are important in order to provide the right controls on things like security, investor protection and anti-money-laundering risks,” said Yue in an interview which followed last month’s JPEX scandal, which has dealt a heavy blow to the public trust in virtual asset trading.

While underscoring the need for consumer education, the HKMA launched a consumer protection against fraud charter in June, asking merchants to avoid sending hyperlinks to customers in their electronic messages. Electronic advertisements of the campaign are running in Hong Kong’s subway stations.

“To invest safely in the virtual asset space, [investors] need to go to the regulated exchange platforms - don’t go to unregulated ones,” Yue said while pointing to JPEX, which collapsed after the demise of FTX last year. He said both scandals “signified the importance of regulation”.

Cryptocurrency-related crimes are on the rise in Hong Kong, with the city’s police force reporting 2,336 cryptocurrency-related complaints last year – a 67 per cent rise from 1,397 cases logged in 2021. The cases involved about HK$1.7 billion in funds, a 106 per cent increase from the year before.

Hong Kong has been driving new policies and regulations that would promote virtual asset trading and push the city’s global leader ambitions in Web 3. Under this initiative, it has introduced new rules that allowed licensed cryptocurrency exchanges to accept retail traders.

Eddie Yue, Chief Executive of the HKMA, photographed at the SCMP office in Causeway Bay. Photo: Nathan Tsui

Regulation for cryptocurrency trading platforms is one part of the government’s broader plan to create a vibrant ecosystem in the digital asset space. Yue added there was a lot of promise in the tokenisation space, which included tokenised bonds, equities and bank deposits.

In addition, the HKMA was leading ongoing pilot schemes such as the testing of the digital currency, the e-HKD, among banks and technology firms. In the future, Hong Kong’s digital asset ecosystem will not limit itself to cryptocurrency trading, but will also include many other elements such as stable coins and central bank digital currencies, said Yue.

Hong Kong JPEX cryptocurrency scandal: police arrest 6 more suspects

“There is a whole spectrum that we should focus on and not just on cryptocurrency assets,” said Yue adding that “there’s got to be a lot more investor education”. Investors and regulators must recognise that there are scams and “enforcement needs to be done in a very vigilant way, in a rightly designed regulatory system”, he said.

Only two cryptocurrency trading platforms – OSL Digital Securities Limited and Hash Blockchain Limited – have been licensed to serve Hong Kong’s retail customers since the Hong Kong regulator Securities and Futures Commission’s (SFC) new virtual asset rules came into effect on June 1. Applications have also been received from HKVAX, HKBitEx, Hong Kong BGE and Victory Fintech, according to the SFC.

“The SFC will regulate virtual asset trading platforms and serve as the guardrails, and if they operate in an unregulated way, the police or the SFC should take action,” said Yue.

This sentiment was echoed by Robert Lui, consultancy Deloitte’s Hong Kong digital asset leader.

“Investor education is very important. The government needs to help the public know more about virtual assets,” said Lui. “I still believe that a lot of people don’t know the meaning of virtual assets or digital assets.”

While institutional investors have the resources and background to make sound investment decisions, the general public does not, Lui added.

The Hong Kong government and regulators should “establish a transparent and fair mechanism for dispute resolutions specific to the digital assets market, as well as to promote better investor education in virtual assets”, said Lui.

Post