Hong Kong’s Virtual Asset Regulation Policies: From Tightening to Relaxed

On April 11th, at the “Policy and Industry Practice” Summit Forum of the Hong Kong Web3.0 Association, Zhao Jiali, former director of the Financial Technology Group of the Hong Kong Securities Regulatory Commission, stated that Hong Kong regulatory agencies had been aware of the need to regulate virtual assets to develop financial technology as early as the 2017 ICO wave. In 2018, while the UK and the US were still thinking, Hong Kong began to construct a virtual asset regulatory framework, although initially it was a tightening policy, But currently, policies are slowly being relaxed and further accepting virtual assets.

Former Director of the Financial Technology Group of the Hong Kong Securities Regulatory Commission: Hong Kong regulatory authorities have been interested in regulating virtual assets since 2017

**Introduction**
In recent years, virtual assets have gained significant importance in the financial sector, leading to the need for regulatory frameworks to govern their use. This need for regulation was identified by Hong Kong regulatory agencies as early as the 2017 ICO wave, with the implementation of tightening policies. However, Hong Kong has now moved away from such policies, and is progressively accepting virtual assets under an established regulatory framework. This article looks into the virtual asset regulation policies in Hong Kong, from its early beginnings to the present day.

Early Awareness of Virtual Asset Regulation

According to Zhao Jiali, former director of the Financial Technology Group of the Hong Kong Securities Regulatory Commission, the Hong Kong regulatory agencies were aware of the need to regulate virtual assets as early as the 2017 ICO wave. It was ascertained that virtual assets presented a potential threat to investor protection and market integrity, and the need for the implementation of regulatory mechanisms became evident.

Virtual Asset Regulatory Framework Development

In 2018, Hong Kong began development of its virtual asset regulatory framework. The framework was initially implemented as a tightening policy, aimed at controlling the use of virtual assets. However, as time progressed, Hong Kong has relaxed its policies and streamlined its regulatory frameworks, focusing on investor protection, market integrity, and anti-money laundering (AML) and counter-terrorist financing (CTF) compliance.

Streamlining of Regulatory Procedures

Hong Kong regulatory agencies have developed less stringent regulations that allow for virtual asset businesses to be regulated in a manner similar to other financial services. Virtual asset trading platforms, brokerage firms, and asset managers are required to comply with the same regulatory standards as traditional financial services businesses.

AML/CTF Requirements

Hong Kong has also implemented AML/CTF procedures, such as customer due diligence and transaction monitoring, in accordance with the Financial Action Task Force (FATF) recommendations. Virtual asset service providers (VASPs) are expected to follow these guidelines to prevent the use of virtual assets for illicit purposes.

Licensing of Virtual Asset Service Providers

Hong Kong requires virtual asset businesses to be licensed under the city’s regulatory agencies. This regulation aims to ensure the protection of investor rights and market integrity, whilst also streamlining regulatory compliance for businesses.

Present Day Acceptance of Virtual Assets in Hong Kong

Despite the early implementation of tightening regulations, Hong Kong has progressively adopted a more accepting approach to virtual assets. The city is now implementing regulatory frameworks that create a level playing field for virtual asset businesses and traditional financial services. The government has also been encouraging the adoption of virtual assets in a bid to promote Hong Kong as an international financial hub.

Conclusion

Hong Kong has come a long way from its initial tightening policies, which were aimed at regulating virtual assets. Today, the city has fully embraced the potential of virtual assets as a financial service, streamlining regulatory frameworks and ensuring market integrity and investor protection. With the ongoing relaxation of regulations and licenses being granted to virtual asset businesses, Hong Kong is paving the way for a prosperous future in financial technology.

FAQs

**1. What is the virtual asset regulation framework in Hong Kong?**
Hong Kong has implemented regulatory frameworks that create a level playing field for virtual asset businesses and traditional financial services. The city requires virtual asset businesses to be licensed under its regulatory agencies, ensuring the protection of investor rights and market integrity.
**2. How has Hong Kong progressed from its initial tightening policies to a more accepting approach to virtual assets?**
Hong Kong has progressively adopted a more accepting approach to virtual assets, with the government encouraging their adoption in a bid to promote Hong Kong as an international financial hub. The city has streamlined its regulatory frameworks, focusing on investor protection, market integrity, and AML/CTF compliance.
**3. What measures has Hong Kong’s regulatory framework taken to prevent the use of virtual assets in illicit activities?**
Hong Kong has taken various measures to prevent the use of virtual assets for illicit purposes. These measures include AML/CTF procedures such as customer due diligence and transaction monitoring in accordance with FATF recommendations. VASPs are expected to follow these guidelines to prevent the use of virtual assets in illicit activities.