First Digital Trust, a Hong Kong-based company, expressed its hopes for the city to accelerate the regulation of the digital assets sector. Hong Kong aims to establish itself as a global hub for cryptocurrency but currently only has two fully licensed virtual asset trading platforms. Many other crypto exchanges are still waiting for full operational licenses in the city. Vincent Chok, CEO of First Digital, acknowledged that Hong Kong’s conservative approach to regulation prioritizes investor protection. However, he also highlighted that operating an unlicensed virtual asset trading platform in Hong Kong became a criminal offense as of June 1. The Securities and Futures Commission (SFC) of Hong Kong has published an alert list of suspicious virtual asset trading platforms or unlicensed entities targeting Hong Kong investors.
In July, the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) released their findings on local stablecoin regulation. Subsequently, Jingdong Coinlink Technology Hong Kong Limited, a subsidiary of JD Technology Group, announced plans to issue a stablecoin pegged to the Hong Kong dollar, recognized by the HKMA as a participant in the sandbox program. Meanwhile, Dubai has made significant progress in the stablecoin sector. Tether, the largest stablecoin provider, revealed plans to launch a stablecoin pegged to the United Arab Emirates dirham in partnership with UAE-based Phoenix Group and Green Acorn Investments. Additionally, a former MIT alumnus and SoftBank executive introduced a dirham-backed stablecoin listed on decentralized finance protocols.
Chok does not expect banks to rush into offering digital asset custody services due to the liability beyond their risk appetite. However, several companies with established trust structures are already providing crypto custody services. In contrast, Standard Chartered in the United Arab Emirates has been allowed to offer crypto custody services. The bank initiated its custody services in partnership with Brevan Howard Digital, the cryptocurrency division of Brevan Howard hedge fund.
While the licensing regime for digital asset trading services may be slow, Hong Kong is making progress in other areas of Web3, such as central bank digital currencies (CBDCs) and tokenization of real-world assets. BTC and ETH exchange-traded funds in Hong Kong allow for a unique “in-kind” subscription mechanism that enables direct subscription and redemption using BTC and ETH. The HKMA’s Project Ensemble regulatory sandbox explores the tokenization of real-world assets and interbank settlements using a wholesale central bank digital currency. This initiative aims to investigate the technical interoperability of tokenized assets, tokenized deposits, and a wCBDC.