First Digital Trust, a Hong Kong-based company, expressed its hopes for the acceleration of digital asset regulation in the city. Hong Kong aims to establish itself as a global hub for cryptocurrency but currently only has two fully licensed virtual asset trading platforms: Hash Blockchain and OSL Digital Securities. Many other crypto exchanges are still awaiting full operational licenses.
Vincent Chok, CEO of First Digital, acknowledged that Hong Kong’s approach to regulation in trading is more conservative and slower compared to other jurisdictions due to its emphasis on investor protection. However, he highlighted that operating an unlicensed virtual asset trading platform became a criminal offense in Hong Kong as of June 1. The Securities and Futures Commission (SFC) of Hong Kong also published an “alert list” of suspicious virtual asset trading platforms or unlicensed entities targeting Hong Kong investors.
On July 17, the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) released their findings on local stablecoin regulation. A week later, Jingdong Coinlink Technology Hong Kong Limited, a subsidiary of JD Technology Group, announced its plans to issue a stablecoin pegged to the Hong Kong dollar (HKD). The HKMA recognizes the company as a participant in the sandbox program.
Meanwhile, Dubai has made significant progress in the stablecoin sector. Tether, the largest stablecoin provider, revealed its plans to launch a new stablecoin pegged to the United Arab Emirates dirham (AED) in partnership with UAE-based Phoenix Group and Green Acorn Investments. Additionally, in October 2023, a former MIT alumnus and SoftBank executive introduced a dirham-backed stablecoin listed on decentralized finance protocols Uniswap and PancakeSwap.
Chok also mentioned that banks are not expected to rush into offering digital asset custody services due to the additional liability beyond their risk appetite. However, several companies with established trust structures are already providing crypto custody services to fill this gap. Standard Chartered was recently allowed by the United Arab Emirates to offer crypto custody services, starting with Bitcoin (BTC) and Ether (ETH).
While the licensing regime for digital asset trading services may be slow, Hong Kong is making progress in other areas of Web3, such as applications in central bank digital currencies (CBDCs) and tokenization of real-world assets. Chok highlighted that BTC and ETH exchange-traded funds in Hong Kong offer a unique “in-kind” subscription mechanism, allowing for direct subscription and redemption using BTC and ETH. The HKMA’s Project Ensemble regulatory sandbox is exploring the tokenization of real-world assets and interbank settlement using a wholesale central bank digital currency (wCBDC).
Project Ensemble builds on earlier initiatives, including trials of tokenized deposit settlements with HSBC using Ant Group technology and settlement experiments involving the HKMA’s pilot e-HKD CBDC for transactions between HSBC and Hang Seng Bank.