At the start of Hong Kong Fintech Week, the Hong Kong government today made a policy statement on crypto assets, showing a cautious but slightly more open approach to what it refers to as virtual assets (VAs).

The first pillar of the policy is a plan to regulate service providers on top of its existing voluntary regulation of cryptocurrency exchanges.

Second, the Securities and Futures Commission will hold a public consultation on how retail investors can gain an “adequate degree” of access to cryptocurrencies. It also acknowledges that ETFs have been permitted in other jurisdictions and is “open to the possibility” in Hong Kong.

Finally, it will review the property rights of tokenized assets and explore the legality of smart contracts.

The government also highlighted pilot projects such as NFTs at Hong Kong Fintech Week, its eHKD CBDC, and green bond initiatives.

“The government is ready to embrace this future, and we welcome the pooling of the VA and fintech community and talents in Hong Kong, and we will promote the sustainable development of financial services throughout the VA value chain,” said Mr. Christopher Hui, Secretary. of Financial Services and Treasury.

The policy statement outlined “VA’s entire value chain, encompassing VA issuance, tokenization, trading and settlement platforms, funding and asset management, and custody.”

Note that some crypto firms from Hong Kong have moved to Singapore, which itself announced a conservative set of inquiries last week. For example, Singapore is considering imposing knowledge and education requirements on unaccredited investors before they can invest in cryptocurrencies.

Allow banks to interact with crypto service providers

Hong Kong emphasized its adherence to the principle of “same business, same risks, same regulation.” It says it plans to regulate service providers for AML and investor protection in a similar way to what “currently applies to traditional financial institutions”.

The advantage of this increased supervision is that “financial intermediaries and banks will be able to partner with authorized VA exchanges.”

The government’s caution is highlighted by its own depiction of the opportunities crypto offers, which emphasizes the metaverse, real-world tokenized assets, and CBDC.

“Hong Kong shows signs of a vibrant VA ecosystem, as evidenced by the issuance of NFTs in our market, the presence of Metaverse developers, and the use of DLT in trade finance, etc,” the policy statement says. “More opportunities can be realized if we look further into more use cases, for example, arts and collectibles trading, tokenization of vintage goods or, in the case of financial innovations, tokenization of a broad spectrum of products such as debt securities” .