State of HK Crypto Regulation - Part 2 - HKMA, HKEx and more!

Apart from HKSFC, HKMA, HKEx and Talent List Hong Kong also imposed regulatory framework in blockchain and cryptocurrencies. 

1)    Hong Kong Monetary Authority (HKMA)

a)    Advice on dealing with crypto-assets

Issued by the Basel Committee on Banking Supervision (“BCBS”) on 13 March 2019, crypto-assets do not provide the standard functions of money and are not reliable as a medium of exchange and storage of value. These assets are not legal tender and are not backed by the government.

Before engaging any activity related to crypto-assets, Authorized institutions (“AI”) should discuss with HKMA to ensure appropriate systems and control are in place.

b)   Fintech Supervisory Sandbox (FSS)

HKMA has upgraded the sandbox to FSS 2.0, which links up the sandboxes with HKSFC and the Insurance Authority (IA). As of Feb 2019, there are 46 pilot trials in the FSS 2.0, in which 32 of them have completed. The breakdown of FSS 2.0 is shown as below:

Statistics on Usage of the FSS

Source: HKMA

c)    Virtual banking licences

Hong Kong Monetary Authority (HKMA) made an announcement on 27 March 2019 that it granted the first three virtual banking licenses to Livi VB Limited, SC Digital Solution Limited and ZhongAn Virtual Finance Limited. Mr. Norman T.L. Chan, CEO of HKMA said: “I believe that virtual banks will not only help drive FinTech and innovation, but also bring about brand new customer experiences and further promote financial inclusion in Hong Kong”. We believe the granting of virtual banking license by HKMA will attract more innovative FinTech companies to locate their headquarters in Hong Kong. 

2)    Hong Kong Stock Exchange (HKEx)

Issued in October 2018, HKEx’s report proposed that cryptocurrencies and blockchain should be regulated under the existing legislative framework.

HKEx is exploring the feasibility of RegTech. These include i) Deploy “supervisory sandbox” to encourage FinTech adoption in non-banking sector and securities industry; ii) Exploring the use of blockchain in KYC operations, public sentiment monitoring and identification of corporate relationships.

3)    Talent List Hong Kong

Talent List Hong Kong added Fintech professionals to the Quality Migrant Admission Scheme (QMAS), including but not limited to data scientists, tech experts in distributed ledger technology and cyber security experts. 

To sum up…

Hong Kong has been expediting its pace to regulate blockchain and cryptocurrencies. We believe the regulatory authorities encourage innovation of blockchain by attracting Fintech professionals and setting up sandboxes to tech companies. We foresee the importance of blockchain will play a more important role in RegTech, and a more comprehensive regulation of Security Tokens is what investors needed.