This article is based on two discussions at the Finternet 2025 Asia Digital Finance Summit. The first part discussed "The Evolution of Digital Asset Regulation from Hong Kong to the Middle East," moderated by Rocky Tung, Director and Head of Policy Research at the Hong Kong Financial Services Development Council, with Elizabeth Wong, Director of Intermediaries and Head of Fintech at the Hong Kong Securities and Futures Commission, and Wai Lum Kwok, Senior Executive Director of the Financial Services Regulatory Authority of Abu Dhabi International Financial Centre. The second part discussed "Hong Kong's Breakthroughs, Innovations and Safeguards," moderated by Gary Tiu, Executive Director and Head of Regulatory Affairs at OSL Group, with Eric Yip, Executive Director of the Intermediaries Division at the Hong Kong Securities and Futures Commission.
Regulatory Challenges of Cross-Border Transactions and Capital Flows
Rocky: I think there are many similarities between ADGM and Hong Kong regulators. We have an international background, but also our own characteristics, and we want to build connections with different markets and parties. We want to move forward steadily, rather than aggressively inviting everyone to participate, only for everyone to quickly withdraw when problems arise. We don't want to see that happen. Based on this, I want to ask you two similar questions: What similarities do you see in the markets? And what are the differences? How can participants in one market currently utilize and enter another market?
Wai Lum: I see many similarities, and over time, regulatory frameworks will become increasingly convergent.
We primarily view cryptocurrencies through a traditional finance (TradFi) perspective, focusing on investor protection and the security of the financial system. From this perspective, regulatory frameworks in markets like Hong Kong, Singapore, and the UAE are increasingly converging, sharing many elements such as asset segregation and market abuse regulations. Therefore, this convergence of regulatory frameworks helps businesses expand. Companies in Hong Kong and the UAE are currently seeking expansion, making framework convergence crucial for them. While each market has different priorities and starting points, these differences will gradually diminish over time. Hong Kong's regulatory priorities are to start from scratch and be flexible in responding to changes, while many established international financial centers need to adjust their existing frameworks. Therefore, each region has a different starting point, and differences still exist. Elizabeth: I agree. International standardization bodies also require regulators in different countries to adopt a unified regulatory approach; the current principle is "same activity, same risk, same regulation." This is also what we do in Hong Kong and Whilam in the UAE. We are all driving the development of the digital asset ecosystem within the traditional financial framework. I also agree with Whilam's point that many companies consider the regulatory environment when choosing their headquarters to enhance trust with investors and customers, thereby supporting their expansion into other global markets. Regarding tokenized assets, global regulators take a similar approach. We treat these assets as securities, and if they are securities, they are regulated according to securities regulations. This approach has gained widespread support globally, especially among FinTech companies, who are better suited to this approach. Therefore, large companies are focusing on the digital asset ecosystem in both the cryptocurrency market and traditional finance. Rocky: We need to build an effective ecosystem that connects traditional finance with the digital asset sector, while also aligning with other markets. Hong Kong faces complex challenges in this regard, especially regarding the issuance of OSL's first license. Why was the approval process so long? How can we ensure the healthy development of the ecosystem while adhering to the rules in the future? Elizabeth: We acknowledge that the approval process for virtual asset trading platform licenses in Hong Kong is lengthy. Part of the reason is that when we began working with OSL, the regulators had only a deep understanding of the digital asset market for the first time. We worked closely with OSL and spent a lot of time understanding its business and the characteristics of digital assets. Many companies still hold the mindset that "we come from the cryptocurrency world and are not entirely part of traditional finance," and it will take time for them to adapt to the regulatory requirements of the traditional financial framework. Currently, we are working with the government to release two consultation papers aimed at improving Hong Kong's digital asset ecosystem. We are considering issuing licenses for virtual asset brokers and custodians to ensure regulation at every stage. We believe that through compliant regulation, Hong Kong can build a sustainable market. We have also received suggestions to extend regulation to virtual asset advisory services and fund management services. We are working with the government to explore whether to include these in the regulatory scope. Once a complete ecosystem is established, more overseas companies will enter Hong Kong, bringing global liquidity and further driving the development of the Hong Kong market. How does ADGM ensure secure, clear, and traceable transactions? Rocky: How does ADGM ensure seamless cross-border transactions and capital flows? How does it improve efficiency and ensure these transactions are secure, clear, and traceable? Wai Lum: Being a pioneer is very challenging, but we believe change in this field is inevitable. We've always been ahead of the curve, interacting with the industry early because we didn't have ready-made reference points. We apply the framework of traditional finance to the new financial field to solve issues such as interoperability and efficiency. I believe the way to ensure future adaptability is to maintain close interaction with the industry. We often learn alongside the industry, with industry participants serving as our bridge to other jurisdictions. When we develop frameworks, industry participants approach us with their products and business models, and we collaborate with them to understand their needs and tailor the framework accordingly. Through this process, we have gradually developed frameworks for stablecoins, tokenized assets, and lending platforms, among others. These companies are mostly compliant and willing to follow the rules with us. They also share their experiences in other jurisdictions with us, helping us to be more cautious in developing our frameworks. We need to ensure future adaptability and maintain a sense of responsibility towards international standards and industry development. Deviating from the mainstream can lead to difficulties for companies expanding overseas. Therefore, as regulators, maintaining close ties with the industry and participating in global regulatory dialogues is crucial. We regularly participate in seminars with the Financial Stability Board (FSB), the Stablecoin Association, and others to help us stay up-to-date with industry developments.
Practical Applications and Market Feedback of Tokenized Assets
Rocky: Communication with industry participants is crucial. We cannot be "outliers" in regulation; we should maintain dialogue with other regulatory bodies to ensure sustainable regulatory development in each jurisdiction. Tokenization has recently become a hot topic. Are there any successful cases from Hong Kong that you can share?
Elizabeth: To be honest, progress has been rather slow. We issued a tokenization-related notice in 2023, but by 2025 we were still discussing whether we could find practical application cases. Our work involves issuing regulatory guidance to clearly inform the industry how we regulate tokenized securities in accordance with securities laws.
We also participate in the Hong Kong Monetary Authority's (HKMA) "Project Cluster," providing regulatory guidance to the industry to help them understand how to construct tokenized securities, design structures, and apply for licenses. Our tokenization experience is similar to that of the digital asset market. We sought industry feedback on trading platform policies but did not receive sufficient responses. Therefore, we hope for greater market participation to jointly drive this process. We are considering how to accelerate the process and promote market-driven innovation. We plan to launch an acceleration program in the coming months to promote more practical use cases, whether for tokenized assets or other digital asset applications. How to Properly Handle Cross-Border Interoperability and Regulatory Challenges? Rocky: Cross-border interoperability is a huge challenge for both practitioners and regulators. How do you ensure this challenge is handled properly to ensure seamless cross-border transactions? Wai Lum: Interoperability can be divided into intergovernmental, inter-industry, and technology-regulatory interoperability. Each level of interoperability is different. Regarding intergovernmental interoperability, the most effective method is to maintain continuous communication. Digital assets are inherently cross-border, and more and more companies are operating in multiple jurisdictions. We must ensure interoperability through dialogue, especially when explaining our position to other regulatory bodies. Different jurisdictions and regulatory bodies have different priorities and considerations, and we screen industry players who are willing to grow with us, ensuring they share our vision and want to move forward together. Currently, industry models are highly fragmented, with some companies using specific blockchains and others choosing their own Layer 1 solutions. As regulators, we focus not only on intergovernmental interoperability but also on interoperability between regulation and industry, and between regulation and technology. To this end, we have incorporated Regulatory Technology (RegTech) and SubTech as part of our strategy. The digital-native nature of cryptocurrencies enables us to connect, monitor, and track online through digital means. For example, in fiat reference tokens and stablecoin frameworks, we can track on-chain circulation in real time and ensure data accuracy by connecting to reserve accounts via APIs. This is interoperability between regulation and industry. In addition, we have encoded rules and regulatory requirements into a machine-readable format. In the future, we hope that smart contracts can interact with our rules, read and understand rule changes in real time, and make corresponding adjustments. Elizabeth: In February of this year, we released the "Digital Asset Roadmap," which includes issues such as virtual asset derivatives trading and virtual asset lending. We are also considering how to strengthen dialogue with the industry, understand market trends, and formulate more reasonable regulatory policies. We are also exploring how to strengthen industry monitoring, especially when integrating more regulatory systems and participants, to ensure we can control market activities. These measures are what the market can expect, although they cannot be fully realized in the short term, but we are working hard to promote them. Part Two: Hong Kong's Breakthroughs, Innovations, and Safeguards Gary: As a policymaker at the Securities and Futures Commission, how do you ensure the long-term applicability of policies and avoid them becoming out of touch with market changes? Eric: In reality, striving for perfection doesn't always lead to the best results. Just like I once told a colleague, you don't always have to ask for a raise; you might actually get one. This principle also applies to regulation; being overly perfectionistic can be counterproductive. In practice, we develop our regulatory framework using tools such as regulations, rules, and guidelines. Hong Kong's regulatory system is relatively well-established, and we began building it gradually in 2018. Compared to the United States, despite the rapid development of the crypto market, regulation still requires time. The primary goal of crypto legislation is to combat unlicensed activities, rather than relying excessively on static legal provisions. We also ensure regulatory flexibility through public consultation, notifications, and dialogue with the market. Markets often prefer principle-based regulation, but once implemented, they often demand specific rules. My view is that rule-based regulation is suitable in the initial stage, while a more flexible, principle-based approach should be gradually adopted as the market matures. This helps adapt to change and maintain flexibility. Hong Kong is moving towards a higher-quality market, and we should move in this direction. How Does the Banking Industry Choose Between Principles and Rules? Gary: As a former banker and now a regulator, have you observed differences in thinking between the banking and regulatory sectors in policy-making in the digital asset field? For example, how do you choose between principles and rules? Eric: I'm not just a banker; I actually started out as a pianist. Later, I managed the stock market at a stock exchange, then worked in private equity, then banking, and finally became a regulator. My career has involved many difficult transitions. But now, as a regulator, this is the easiest phase of my career. However, my consistent philosophy is that whatever you do, you must plan, build, and grow. You can't skip these steps. For example, you can't just think about playing the Moonlight Sonata tomorrow; even Mozart couldn't do that. You must plan and learn first to reach that level. Similarly, the same applies to the digital asset space. Many of our achievements are thanks to our colleagues in the market and the Securities and Futures Commission, because we started this journey in 2018. While we are not the most aggressive regulators in the crypto industry, we have remained steadfast. We have successfully averted some major catastrophes in the cryptocurrency industry, such as the bankruptcy of FTX. Accelerating Innovation and the Implementation of "Fail Fast" in Hong Kong. Gary: I also really like your self-assessment approach. We conduct a full review every three months, the last one being three weeks ago, and we're still recovering from the trauma. However, the two initiatives you mentioned regarding accelerating innovation and licensing particularly caught my attention. Everyone wants Hong Kong to innovate faster, maintain flexibility, and accelerate commercialization. The "iterative mindset" in the crypto industry is also highly regarded; we hope to innovate through continuous trial and error. My question is, in Hong Kong, we've already seen similar "fail-fast" approaches, especially in licensing. If a project doesn't meet the requirements, we don't give it a chance to enter the market—that's an early form of "fail-fast." Another approach is to let projects enter the market, but if they fail to comply, they naturally exit. So, do you think we should see more of this second type of "fail-fast" in Hong Kong? That is, allowing projects to enter the market faster, and if they don't succeed, they naturally exit? Eric: This should be part of the acceleration plan; we hope to take a "small steps, quick progress" approach. Personally, I'm not the managing director of digital assets; I'm the managing director of an intermediary firm, so my scope is broader. While I spend a significant portion of my time in the digital asset space, I also need to pay attention to the other 95% of the market, which also needs my attention. Digital asset regulation, for us, definitely requires a balance between risk and reward. Business-wise, if you have more capital, you can try more innovation. But if capital is limited, you need to be more cautious. Gary: Does the process of developing digital asset policies become more challenging through trial and error? Eric: Actually, it wasn't difficult for me. Because I believe the key to trial and error is not to strive for perfection; practicality is more important than perfection. My team has been working very hard, and we are continuously improving, pushing forward step by step. Gary: So, what do you hope the Hong Kong crypto market will achieve? What kind of products do you hope to see? If measured in months, when should we expect to see these innovations? Eric: Doing your homework is key! I've always been persistent, although I'm a contradictory person—I have my own principles, but I'm also flexible within certain limits. Looking at our goals, we already have a clear product plan. We hope to see development in areas such as derivatives, modular financing, and collateralized lending. In fact, I just talked with my colleagues yesterday about capital rules for virtual asset derivatives trading, and the work is progressing very quickly. So what you need to focus on is that I have clearly stated these goals. Gary: So, what about the timeline? How long will it take to see these innovative products launched to the market? Eric: It depends on the pace of market development. While I have a strong desire to drive these changes, we must realistically recognize that the Hong Kong market needs time to adapt. Our current regulatory framework is principle-based, so the maturity and professionalism of market participants are crucial. We can push for policy changes, but the market also needs to evolve in tandem with us. In some ways, we do feel we are moving faster than the market. Therefore, our work needs to be closely aligned with the market to help it grow further.
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