Applications for virtual asset trading platform licenses have stalled. Will Hong Kong follow Dubai’s lead?

Author: Bitkoala Editor: Daheilong

According to the official website of the Hong Kong Securities and Futures Commission, since February this year, only two crypto companies have submitted applications for virtual asset trading platform licenses. The community seems to have discovered that Hong Kong's slow attitude towards cryptocurrency regulation will inhibit the growth of digital assets?

BitkoalaKoala Finance will analyze this with you in this article.

Hong Kong's virtual asset market faces growing competition

Hong Kong is committed to positioning itself as a global center for cryptocurrencies, but so far there are only two fully licensed virtual asset trading platforms: Hash Blockchain and OSL Digital Securities. Many other cryptocurrency exchanges are still waiting for full operating licenses in Hong Kong.

First Digital CEO Vincent Chok said: Hong Kong’s current approach to trading regulation is more conservative and slower than some other jurisdictions, which is understandable as it prioritizes investor protection. We would like to see the pace of regulation increase to ensure it does not lag behind the rapid development of the industry. ”

From June 1 , operating an unlicensed virtual asset trading platform (VATP) in Hong Kong is a criminal offence. Meanwhile, the Securities and Futures Commission of Hong Kong has published a "Warning List" of "suspicious virtual asset trading platforms" or unlicensed entities operating in Hong Kong. The SFC said these entities may target Hong Kong investors. Frankly speaking, Hong Kong is facing competition from other jurisdictions, such as Dubai, which has made progress in the stablecoin field. Tether, the world's largest stablecoin provider, announced plans to work with a UAE-based partner to launch a stablecoin pegged to the UAE dirham. Notably, some companies have begun to provide cryptocurrency custody services in the region.

Recently, the UAE allowed Standard Chartered to offer such services, starting with Bitcoin and Ethereum.

Hong Kong has reportedly launched the first exchange-traded funds (ETFs) focused on cryptocurrencies, which could compete with the United States' popular Bitcoin products.

Will Hong Kong follow Dubai's lead?

On July 17, the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) released the results of their study on local stablecoin regulation. A week later, on July 24, JD Technology Group subsidiary JD Coinlink Technology Hong Kong Limited announced plans to issue a stablecoin pegged to the Hong Kong dollar (HKD) 1:1. The HKMA admitted the company as a participant in the sandbox program.

Meanwhile, Dubai has taken a leading role in the stablecoin space and made significant global progress. On August 21, Tether, the largest stablecoin provider, revealed plans to launch a new stablecoin pegged to the UAE Dirham (AED) in partnership with the UAE's Phoenix Group and Green Acorn Investments.

Hong Kong needs to raise standards for integrating its financial system with Web3

While progress may be slow on a licensing regime for digital asset trading services, the city has made progress in other areas of Web3, including the application of central bank digital currencies (CBDCs) and the tokenization of real-world assets.

VincentChok said: “It is worth noting that Hong Kong’s BTC and ETH exchange-traded funds allow the use of a unique ‘physical ’ subscription mechanism, allowing the use of BTC and ETH direct subscription and redemption. This innovative structure provides investors with a flexible and simple investment process. Hong Kong's Trust and Company Service Provider License also allows trust structures to hold digital assets, which is a favorable and unique feature compared to other jurisdictions. At the same time, this sound system paves the way not only for custody services, but also for complex services related to them, such as estate management. ”

Initiatives such as the Hong Kong Monetary Authority's Project Ensemble Regulatory Sandbox are paving the way for the tokenization of real-world assets and the use of tokenized currencies for interbank settlement. On August 28, the Hong Kong Monetary Authority launched the Project Ensemble Sandbox. The initiative explores the use of wholesale central bank digital currencies (wCBDCs) to tokenize real-world assets and interbank settlements. The HKMA said the project aims to study the technical interoperability of tokenized assets, tokenized deposits and wCBDCs. The Ensemble project is the culmination of several earlier initiatives. These include a tokenized deposit settlement trial with HSBC using Ant Group technology, and a settlement trial of transactions between HSBC and Hang Seng Bank using the HKMA’s pilot e-HKD CBDC.

Summary

At present, Hong Kong is still focused on ensuring compliance and security to establish a robust and trusted market environment. It is still unknown whether Hong Kong will learn from Dubai's experience in the future, but it seems that it can try to adjust its regulatory policies to attract more virtual asset trading platforms. Specifically, the following aspects can be explored:

1. Simplify and make the application process transparent:The current application process is relatively complicated and time-consuming. Simplifying the process and improving transparency can reduce the difficulty and time cost of the platform's application.

2. Introduce a sandbox regulatory mechanism:Learn from the experience of Singapore and other places, allowing emerging platforms to conduct pilot operations in a controlled environment, reduce innovation risks, and accumulate regulatory experience at the same time.

3. Improve the legal framework:Currently, Hong Kong's virtual asset supervision mainly relies on existing securities and futures legal documents and lacks a special legal system. For example, it can refer to the EU's MiCA Act to establish a unified virtual asset supervision framework.

4. Strengthen international cooperation:Strengthen cooperation with other leading virtual asset supervision regions such as Dubai and Singapore, share supervision experience and information, and enhance Hong Kong's competitiveness in the international market.

5. Provide more market incentives:For example, tax incentives, technical support, etc., to attract more platforms to set up and operate in Hong Kong.

6. Strengthen public education and market promotion:Through education and publicity, improve the public's understanding and trust in virtual assets and promote the healthy development of the market3.

These measures can help Hong Kong attract more virtual asset trading platforms while maintaining market safety and compliance, and promote the prosperity of the market.