Hong Kong is preparing a series of regulatory reforms to make the city more attractive to companies in the cryptocurrency and blockchain industries, after losing businesses to rival Singapore amid concern that China’s ban on crypto trading would eventually reach the city.

Elizabeth Wong, a senior official at Hong Kong’s Securities and Futures Commission, or SFC, said the city has a divergent crypto policy stance from that of mainland China, and it won’t be affected by the blanket crypto ban on the mainland. 

“Hong Kong has one country, two systems principle,” said Wong on Monday at the InvestHK conference in the city. “It’s a constitutional principle that forms the basic foundation to Hong Kong’s financial markets,” said the director of licensing and head of the fintech unit of the SFC.

Hong Kong did initially attract some of the world’s largest crypto exchanges, such as FTX, run by billionaire Sam Bankman-Fried. But Bankman-Fried shifted the FTX headquarters from the city to the Bahamas in 2021, a move followed by the Crypto.com exchange that relocated to Singapore as China’s ban on digital asset trading the same year sparked concern Hong Kong could follow. 

Wong on Monday said Hong Kong regulators initially took a “prudent” approach to the digital asset industry, such as a ban on retail investing on centralized crypto exchanges within the city. 

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Image: Elizabeth Wong speaking at the Fintech Day | Ningwei Qin, Forkast

“It may be a good time to really think carefully about whether we will continue with this professional investor-only requirement,” Wong said. SFC has already loosened some restrictions on retail investors, allowing service providers to sell them some virtual asset-related derivative products as of January, noted Wong. 

In addition, an anti-money laundering bill introduced to Hong Kong’s Legislative Council could establish a new licensing regime for digital assets if passed. “We hope that this regulatory framework can enable the industry to have an orderly and sustainable development while balancing investor protection,” Wong said. 

Gaining ground?

Hong Kong has lost out to rival Singapore as cryptocurrency exchanges like Crypto.com and Huobi moved out to the city-state, even as the Monetary Authority of Singapore warned the public about the high risks of crypto investing and banned some advertising by exchanges. 

But Singapore at the same time stated its intention to become a web3 and blockchain-based hub for the financial industry. 

Hong Kong’s seeming shift on crypto regulations could be an attempt to stem the loss of business to its rival financial hub Singapore, said Anna Liu, head of legal at Asian end-to-end digital asset financial services group Hashkey Capital. 

“Singapore has been pushing the development of the crypto industry since 2019 and I don’t think they will lose the advantage in the short term,” said Liu. However, both jurisdictions have their own strengths, and Hong Kong’s move to a more Singapore-like attitude will increase its global competitiveness and likely draw some web3 companies back, she added. 

An updated policy statement on cryptocurrencies is also set for release during Hong Kong’s Fintech Week, which starts on Oct. 31, according to a blog published on Sunday by Hong Kong’s Financial Secretary Paul Chan.

The statement will cover the city’s policy stance and regulations on virtual assets to offer a “vision of developing Hong Kong into an international virtual assets center,” according to the blog.

 “We do see a huge opportunity for Hong Kong to regain its position as the hub of virtual assets and web 3 given a clear legal and regulatory framework,” Victor Yim, head of fintech at local incubation hub Cyberport, said at the Monday InvestHK conference.

Cyberport is wholly owned by the local government, with about half of the city’s blockchain technology companies and 72% of digital asset start-ups serving as members.  

Brian Chan, investment director at Venture Smart Asia Hong Kong, was also beating the drum for the city at InvestHK.  “As a gateway between Mainland China and the West, Hong Kong is very well positioned for us to acquire talented people, and to find high-quality developers to work with,” he said. 

The government can further support the web3 industry and attract talent through more clarification and transparency on regulation, added Chan. He said Hong Kong’s web3 industry will benefit from integration with the city’s financial market, which boasts the seventh-largest stock exchange in the world.