Interview with a Lawyer: 2024, What Are the New Highlights in Hong Kong's Cryptocurrency Regulatory Policies?
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Interview with a Lawyer: 2024, What Are the New Highlights in Hong Kong's Cryptocurrency Regulatory Policies?
This podcast basically covered questions and all the hot topics regarding Hong Kong.
Navigating Web3 tides with focused insightsEditor: Wu Talk Blockchain
Lawyer Wu Wenqian joined OK in 2017, possibly the first overseas lawyer at OK. He moved to Huobi in 2018 and since 2020 has been assisting cryptocurrency firms with compliance pathways in Hong Kong, making him one of the most knowledgeable lawyers on Greater China's crypto landscape and Hong Kong regulation. This podcast covers nearly all key questions and hot topics regarding Hong Kong.
For more information, refer to his previous articles:
1. "Twenty Key Points: A Simple Guide to Hong Kong’s Latest Cryptocurrency Consultation Paper"
Below is an edited summary. Full content available via the podcast.:
Please introduce your background, Lawyer Wu:
I joined OK in 2017 and was likely the organization’s first legal counsel. At that time, I provided legal services to OK Group in Hong Kong. Then in 2018, I moved to Huobi Group, primarily handling compliance and overseas mergers and acquisitions, including significant international legal matters. I also participated in Hong Kong-based listed company acquisitions. In 2020, I founded my own consulting firm, and in 2022 co-founded a venture capital firm with several partners. That same year, we applied for and successfully obtained licenses under categories 1, 4, and 9, enabling our company to legally conduct virtual asset-related business. Additionally, I serve as an advisor at a law firm, helping multiple companies apply for licenses and providing consultancy services for various cryptocurrency projects.
Is the current licensing pace of Hong Kong regulators normal?
Regarding this, OSL and Hashkey were among the earliest applicants, along with another Hong Kong company already in the aip phase—these entities began their application process during the 2018–2019 sandbox period. Their applications progressed relatively quickly following the Hong Kong government’s release of the Web3 statement last October. Most other applications are based on the new VASP license framework adopted in December last year. I believe this should be viewed in stages. Applications from 2018 and 2019 were slower because the sandbox program required time for the SFC to deeply understand and learn how the industry operates. However, by June this year, once the SFC had gained sufficient understanding, the new VASP licensing regime was implemented. Going forward, license applications are expected to become faster and smoother. Especially for companies already operating in Hong Kong before June 1, they must submit their applications by March 1 next year to continue operations. I expect over ten, perhaps even dozens, of companies will file applications before this deadline. Therefore, I believe the Hong Kong government and SFC are prepared and anticipate handling a large volume of applications. With current preparations and processes in place, I am confident future application speeds will significantly improve.
How do you view the current phenomenon where compliant exchanges offer only a limited number of tokens to retail users?
In my view, this phenomenon stems from a series of strict policies and conditions. First, any token intended for retail trading must have at least 12 months of liquidity history—a basic requirement ensuring token stability and reliability. Second, the token must be listed on at least two indices, which cannot be limited solely to cryptocurrency indices but must include traditional ones such as Bloomberg. These requirements ensure that tokens listed on Hong Kong-compliant exchanges undergo rigorous screening and certification.
However, the situation may evolve in the future. Numerous institutions in Hong Kong and abroad are preparing to launch index-related consulting initiatives. As these indices develop and mature, we can anticipate an increase in tradable token varieties. This not only reflects the SFC’s strategy to protect retail investors but also demonstrates a gradual market opening within a safety-first framework. Given recent security incidents in Hong Kong, I believe the SFC will prioritize investor protection—even if it means sacrificing listing speed for greater safety. Overall, while the market will gradually open up, the process will remain steady and cautious.
What’s your take on the platform points launched by HashKey?
I believe HashKey’s HSK platform points represent a highly compliant and clearly defined approach. To my knowledge, HashKey only issued HSK after obtaining approval from the SFC, demonstrating its strong commitment to compliance. The functions and uses of HSK are also subject to certain regulations, setting a positive precedent for other token listings or future exchange operations.
Specifically, the path involves first securing regulatory approval, followed by platform promotion and related activities, and eventually allowing token listing and retail trading. This is exactly the approach the SFC expects, giving regulators ample time to assess a new token’s liquidity and functionality, thereby balancing and protecting the interests of project teams, regulators, platforms, and users alike. Such a稳健 and transparent approach benefits the healthy development of the entire industry.
What are the highlights of Hong Kong policy this year?
First, I’d like to discuss OTC trading. OTC plays a crucial role in the Hong Kong market, particularly evident in Hong Kong consistently leading global OTC trading volumes this year. Institutions like OSL have made significant contributions in this area. Since 2013, Hong Kong has served as a major OTC traffic hub. OTC profoundly impacts the entire crypto ecosystem, especially fund inflows and outflows. Hong Kong’s contribution to the OTC market is substantial.
Looking back, around 2013, the Hong Kong government issued a statement on Bitcoin businesses, suggesting certain institutions could operate by obtaining an MSO license from customs. However, customs later clarified that Bitcoin does not fall under the definition of currency, meaning pure Bitcoin businesses do not require an MSO license. During this period, Hong Kong’s stance on crypto regulation was quite ambiguous until the SFC later established a clear regulatory direction. Therefore, while OTC may be mentioned in future regulations, I don’t believe it will be a short-term priority.
Conversely, if Hong Kong aims to become a Web3 hub, stablecoins may become a more prominent focus. The HKMA released a paper on stablecoins in 2020 or 2021 and indicated that a more concrete regulatory framework might emerge this year. As a critical link between the virtual asset sector and traditional finance, stablecoins hold great significance for the crypto industry. Effective stablecoin regulation could reduce reliance on OTC markets.
Additionally, regarding STOs, establishing stablecoin regulation or licensing could effectively bridge the virtual asset ecosystem with traditional industries. For example, if Type 1 licensed securities firms can accept stablecoins, settlement could occur internally. This would greatly enhance anti-money laundering oversight and potentially foster financial innovations such as lending, derivatives, and other OTC-like products. Thus, stablecoin development may prove pivotal for integrating Hong Kong’s crypto sector into traditional finance and accelerating growth. In summary, while OTC remains important, the construction and regulation of stablecoin ecosystems may become the focal point in future policy.
How will the collapse of non-compliant exchanges in Hong Kong impact regulatory policy?
At a high level, recent collapses such as JPex have triggered investigations by police and the SFC. Interestingly, when speaking with peers outside Hong Kong’s crypto community, many are unfamiliar with these platforms, suggesting their impact may be largely confined to Hong Kong. While these events significantly affect retail investors, regulators, the Hong Kong government, and international industry perceptions, I believe globally compliant exchanges already form an interconnected network, making compliance an inevitable trend.
The Hong Kong government’s virtual asset and Web3 declaration last year laid out a clear roadmap, including ETF exchange licenses and potential stablecoin regulations this year. Therefore, regardless of what happens with JPex or similar platforms, it is unlikely to fundamentally alter the government’s overall strategy. With the implementation of the licensing regime, the number of problematic exchanges is expected to decline. Hence, concerns about such collapses—both within the industry and at the governmental level—should be limited, as the future direction is already well-defined.
Will the Hong Kong Stock Exchange attract blockchain companies to list in the future?
The Hong Kong Stock Exchange occupies a unique position—it must generate profits for shareholders while also fulfilling a regulatory role overseeing all listed companies in Hong Kong. As such, it must proceed with great caution. Based on my experience during the Huobi era, all communications and announcements involving the HKEX were handled very carefully. Over time, both the HKEX and the SFC have deepened their understanding of the blockchain industry. I believe they may become increasingly open to crypto-related policies in the future. Although recent exchange issues might slow policy advancement temporarily, if the Hong Kong government is truly committed to building a Web3 hub, the HKEX will undoubtedly play a part. As more brokers and licensed firms enter the space, the HKEX is likely to engage more actively in this domain.
How does Hong Kong’s regulatory policy compare to Singapore’s in terms of strengths and weaknesses?
Hong Kong and Singapore each have distinct characteristics in crypto regulation and development, making direct comparisons complex. Traditionally, Hong Kong places greater emphasis on capital markets, whereas Singapore may lean toward conservative or fixed-income investments. Therefore, for crypto funds or financing development, Hong Kong—with its long history of fundraising and abundance of investment institutions—may be the better choice.
In terms of regulatory experience, Singapore is indeed two to three years ahead of Hong Kong, giving local enterprises earlier starts and more accumulated expertise. This early-mover advantage may grant Singapore slight edges in policy receptiveness and corporate adaptability.
However, recent developments suggest Hong Kong may now hold certain advantages. Over the past year, Hong Kong’s handling of crypto issues has demonstrated determination and proactiveness. For instance, the Hong Kong Monetary Authority questioned major banks about why they refuse accounts to crypto businesses—an unusually proactive move globally. The Hong Kong government clearly intends to build a Web3 hub and is pursuing a whole-of-government coordinated strategy. In contrast, after the FTX incident, Singapore adopted a more conservative stance, slowing its previously rapid pace of development.
Nevertheless, both Hong Kong and Singapore are excellent locations for crypto development, especially against the backdrop of regulatory uncertainty in the U.S., positioning Asia as a hotspot for virtual asset growth. Personally, I am more confident in Hong Kong, as the government has laid out a clear roadmap and shown strong resolve and proactive planning.
Overall, while both jurisdictions have strengths, Hong Kong may demonstrate clearer advantages in initiative, strategic planning, and government commitment, potentially securing a prominent position in the future development of virtual assets.
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