Author: Reporter Liu Chenguang, Jiemian News
On June 5th, Leung Fung-yee, the CEO of the Hong Kong Securities and Futures Commission (HKSC) pointed out at the Greenwich Economic Forum (Hong Kong) the importance of leveraging technological power to focus on Distributed Ledger Technology (DLT).
Leung Fung-yee highlighted the application of DLT in the financial market for virtual assets. The resilience of Bitcoin over the past 15 years, through various cycles of ups and downs, proves its ability to exist as an alternative asset. More affirmatively, as the underlying technology of Bitcoin, DLT will stand the test of time. The potential advantages of DLT are evident, as this technology can enhance the efficiency of physical assets in distribution, clearing, settlement, and custody while reducing costs.
She emphasized that while the hype around NFTs may have subsided, the technology is gradually being applied in the world of physical assets. Physical assets are gradually being tokenized, with potential benefits in several areas. Firstly, financial inclusivity; secondly, both parties in a transaction can enjoy higher transparency and privacy; thirdly, enhancing settlement efficiency and reducing costs, with tokenization potentially aiding in achieving atomic settlement; and fourthly, transferability.
Leung Fung-yee believes that the financial services sector can also benefit from the potential advantages and efficiency gains mentioned above, such as the initial issuance, secondary market trading, custody, and collateral of traditional assets like bonds and money market funds, all of which can be completed on the blockchain, representing the future vision of the financial industry.
“While some markets are moving towards T+1 or even T+0 settlement cycles, most existing financial infrastructure and cross-border payment systems still operate on a T+2 basis, making blockchain models particularly appealing. Today, this remains a vision, with a long road ahead,” Leung Fung-yee said.
In Leung Fung-yee’s view, Hong Kong is gradually establishing a Web3 ecosystem. Following the issuance of the world’s first batch of digital government green bonds last year, the Special Administrative Region continued its efforts in February this year by issuing a second batch of bonds on a private blockchain. The initial issuance, trading settlement, interest payment, and maturity redemption of these bonds were all conducted on a private blockchain. With the support of Hong Kong’s legal and regulatory framework, the successful issuance of $6.8 billion worth of green bonds attracted subscriptions from a wide range of institutional investors globally.
Furthermore, to promote the development of Hong Kong’s exchange-traded fund (ETF) ecosystem, the HKSC approved the first batch of virtual asset spot ETFs in Asia for retail investment. These six ETFs began trading at the end of April and have maintained orderly trading since. As of May 31st, the total market value of these ETFs reached $301 million, with a daily average turnover of $5.8 million.
Leung Fung-yee pointed out that, maintaining a position of technological neutrality, the HKSC adheres to the principle of “same business, same risks, same rules.” Investor protection is a top priority in their work.
She emphasized that the HKSC’s support for the Hong Kong Web3 ecosystem does not equate to an endorsement of virtual assets as an asset class. She stated that, given the current situation, virtual assets clearly exhibit a high degree of speculation, with prices fluctuating significantly. Therefore, while meeting investor needs, the HKSC has ensured the implementation of extensive investor protection measures. Regarding virtual asset spot ETFs, the HKSC requires that relevant virtual asset transactions must be conducted on platforms licensed by the HKSC, and these virtual assets must be held by these platforms or banks that meet related standards. The HKSC also requires fund management companies to alert investors about risks and remind them of the significant volatility of this asset class.
In June last year, the HKSC’s regulatory system for centralized trading platforms officially came into effect. Given that off-exchange virtual asset trading easily involves fraud and money laundering risks, the Hong Kong SAR government consulted the public earlier this year on the licensing of over-the-counter service providers. These measures will complement efforts to create a stable and transparent regulatory environment for virtual asset trading. The scope of virtual asset regulation will also be further extended to stablecoins, with a new system for regulating fiat-backed stablecoins currently being prepared.
“It is well known that stablecoins are generally issued by non-bank institutions and may be used for payments. Therefore, regulating the issuers of stablecoins will help protect their holders. The Hong Kong Monetary Authority (HKMA) recently completed a consultation on proposed regulations, including requiring issuers to ensure that stablecoins are fully supported by high-quality and highly liquid reserve assets,” Leung Fung-yee said.
“Will traditional financial services provided on traditional infrastructure be replaced by smart contracts and DLT one day? And when will this happen? These are still unknowns,” Leung Fung-yee admitted, suggesting that market participants interested in exploring these possibilities should actively test relevant use cases, while the HKSC’s responsibility as a regulator is to provide a clear, certain, and consistent regulatory framework to promote market expansion in an environment that safeguards investors.
