Crypto laws are a aggressive enterprise in Asia, with locations resembling Hong Kong and Singapore vying to turn out to be Asia’s crypto hub and seize all of the enterprise related to that standing.
The problem, although, lies in crafting a rulebook that balances investor protections with a welcomingness to companies and new capital. And right here, Hong Kong has a bonus over locations like Japan or Korea, since its common-law framework for conventional finance has made its economic system one of the vital open and free on this planet — a current report from a Canadian suppose tank deemed Hong Kong the “freest economic system” on this planet, with Singapore simply behind it in second place.
With crypto, nevertheless, Hong Kong has moved comparatively slowly, particularly in comparison with Singapore. However Duncan Chiu, a member of Hong Kong’s Legislative Council and chair of its Know-how and Innovation committee, which oversees Hong Kong’s expertise parks and analysis services, says the territory’s preliminary warning with respect to regulating crypto comes with benefits.
“Being a late mover is an efficient factor generally as a result of you could have a transparent image,” stated Chiu in a current interview with CoinDesk. For instance, he pointed to how the Financial Authority of Singapore (MAS), the city-state’s most important monetary regulator, has moved shortly to move guidelines for crypto. MSA initially regulated crypto below its Cost Companies Act, treating crypto inaccurately as a cost instrument relatively than an asset class. Japan did the identical factor early on, forcing later revisions in 2024 as DeFi and tokenization ultimately gained traction.
“Whereas Hong Kong began late, the nice factor is there have been clearer patterns of how these merchandise have been getting used,” stated Chiu, who is likely one of the most distinguished voices for crypto in Hong Kong, together with fellow LegCo member Johnny Ng. Chiu additional identified how the unique bitcoin white paper labeled the asset class as digital money, whereas the market actuality is it’s turn out to be extra of a commodity — a view shared by the U.S. Commodity and Futures Buying and selling Fee — as one other instance of how market conduct round crypto has advanced and wanted laws to adapt.
Constructing regulatory alignment
One of many key points Chiu stated he’d prefer to work on within the LegCo is constructing a transparent classification for various kinds of digital belongings, resembling cryptocurrencies vs. stablecoins, whereas additionally working with world regulators to make sure alignment amongst them.
“We’d like clear definitions and segmentation,” Chiu defined. “Some belongings must be regulated like securities, whereas others ought to stay unregulated, like memecoins.”
In accordance with Chiu, memecoins must be handled as collectibles, very like Pokémon playing cards or stamps.
“Memecoins don’t have performance behind them — they don’t use sensible contracts,” Chiu stated. “They’re simply collectible objects, so I see no motive to control them like monetary merchandise.”
A devoted crypto regulator?
Given how distinctive crypto is as an asset class, some jurisdictions, resembling Dubai and its Digital Belongings Regulatory Authority (VARA), have created their very own separate regulator for digital belongings.
When requested whether or not he felt Hong Kong ought to take the identical path, Chiu recalled that in his early years within the LegCo, he had initially supported the creation of a digital model of the Securities and Futures Fee (SFC), the territory’s markets regulator, referred to as the “eSFC.”
Nevertheless, Hong Kong’s authorities has as an alternative chosen to maintain crypto oversight below present monetary regulators. The SFC has a devoted digital asset group, whereas the Hong Kong Financial Authority (HKMA) oversees stablecoins. Chiu stated that for now, he’s happy with this association, particularly because the SFC expands its headcount whilst the federal government requires austerity elsewhere.
“The federal government’s intention is to maintain all the pieces below the SFC. They may have a group contained in the SFC, and so they’re hiring. We simply permitted that in LegCo,” Chiu famous.
LegCo’s crypto priorities
Chiu sees establishing OTC buying and selling and custodian laws as the subsequent main priorities for the LegCo, whereas leaving constructing guidelines round crypto derivatives and leveraged buying and selling to the SFC and crypto exchanges, relatively than passing new legal guidelines.
Chiu considers crypto regulation a top-five precedence, the others principally being round Hong Kong’s financial restoration and public issues of safety. However he acknowledges that not all of his fellow LegCo members share this similar urgency concerning crypto regulation, with some eager to deal with constructing extra stringent investor safety mechanisms first, to be able to to keep away from one other FTX or JPEX, each of whose failures left many in Hong Kong — and round Asia — with an enormous gap of their digital wallets
Nevertheless, there’s solely a lot legislative bandwidth out there. Hong Kong’s job market is weak, and the actual property sector is on the precipice of a painful correction. Hong Kong can also be caught between the U.S. and Mainland China in Donald Trump’s subsequent commerce warfare, making an financial restoration difficult for the territory.
“Some LegCo members are huge supporters of digital belongings, however not all, after all,” Chiu stated. “All of them have totally different priorities.”
