Are we seriously pursuing financial innovation?
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Are we seriously pursuing financial innovation?
The essence of innovation is trying and allowing failure to happen.
Navigating Web3 tides with focused insightsAuthor: Ricky Chiu, Legislative Council Member
The Securities and Futures Commission’s (SFC) new licensing regime specifically designed for virtual asset trading platforms (VATPs) came into effect on June 1, 2023. The transitional arrangements allowed operators to submit their license applications by February 29 this year and continue offering virtual asset services in Hong Kong from June 1 onward, while complying with the new regulatory requirements, pending the SFC’s final decision on their applications.
However, as the transition period nears its end on May 31, an increasing number of operators have decided to exit the Hong Kong market. At the time of writing, 11 companies have withdrawn or returned their license applications. When the SFC first introduced its licensing criteria, it failed to attract major exchanges such as Coinbase to apply. Since February, several internationally recognized platforms—including Gate and Huobi—have gradually pulled out. By May, the situation had worsened further, with a total of six operators announcing their withdrawal, including OKX, ranked among the top three globally by trading volume. Among the remaining 18 applicants, most are relatively small in scale.
Some lack industry experience, while others are traditional financial institutions venturing into VATP operations without deep roots in the Web3 space.
OKX’s departure has sparked widespread discussion within the industry, raising questions about whether Hong Kong truly has the resolve to develop and embrace Web3.
My WeChat circles have been flooded with commentary, with headlines such as “Has Hong Kong’s Web3 journey ended before it even began?” and “Hong Kong’s arrogance broke OKX’s heart.” Critics accuse regulators of being overly cautious and risk-averse in implementing the new regime, approaching it from a traditional financial mindset that undermines the competitiveness and flexibility of the licenses. Some operators, despite having invested significant resources and upfront costs, ultimately chose to withdraw at the final stage.
Many industry professionals fear the new licensing regime may become another version of the “food truck fiasco,” or mirror the government’s earlier push for virtual banks—much fanfare but little tangible outcome. There is concern that authorities may repeat past mistakes, leaving operators unable to establish viable business models even if they eventually receive approval.
Based on industry feedback, I believe the new licensing regime reveals several concerning issues. First, key policy initiatives related to Hong Kong’s virtual asset market development—such as VATPs, stablecoin issuance, and over-the-counter virtual asset trading—are being developed separately by different government departments, lacking a holistic strategic vision for the industry. As these policies enter consultation or legislative stages at different times, the overall Web3 strategy unfolds in fragmented phases, taking too long and failing to keep pace with rapid technological evolution.
Second, the SFC requires operators to meet stringent standards in areas such as asset custody, conflict-of-interest prevention, cybersecurity, accounting and auditing, risk management, and anti-money laundering and counter-terrorist financing. Many of these requirements are based on traditional financial frameworks and prove excessively rigid when applied to Web3 finance. Several applicants have told me that regulators lack forward-looking vision for next-generation fintech innovation, and applying traditional financial thinking to drive Web3 “financial innovation” severely limits flexibility.
Third, many in the industry believe that both the government and regulatory bodies lack an innovative DNA. While operators’ management teams are required to have extensive experience in virtual assets, the officials and board members overseeing regulation often lack practical experience in running Web3 businesses. This mismatch in technical background, market understanding, and innovative mindset creates a fundamental disconnect that hinders effective communication.
The recent exodus triggered by the licensing regime has shaken market confidence in Hong Kong’s commitment to Web3 development. To restore trust, I urge the SFC to expedite its decisions on pending applications, giving investors long-term confidence in virtual asset trading platforms. Furthermore, the products offered by these platforms must break new ground, striking a balance between maintaining robust legal frameworks, protecting investors, and fostering financial innovation. In reviewing future product proposals, regulators must demonstrate a new mindset and genuine determination to support Web3 finance.
Ultimately, innovation is both a mindset and an action. How can we innovate if we speak passionately about it yet hesitate in practice, fearing loss or mistakes? The essence of innovation lies in experimentation and allowing room for failure. What matters most is learning from setbacks and accumulating experience—not retreating from the outset to a so-called “safe line” in pursuit of a completely risk-free “innovation.”
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