Hong Kong Digital Asset Regulatory Framework and Practical Exploration

Introduction

Hong Kong is building a "trustworthy and innovation-focused digital asset ecosystem" and will continue to strengthen its leading position in the global digital asset field, promoting Hong Kong as a global innovation center. The regulatory framework for digital assets established by Hong Kong and its pioneering sandbox use case practices clearly demonstrate the specific path for innovation to achieve robust development within a compliant framework.

Development History of Digital Assets in Hong Kong

1.1 Prelude: The "Pause Button" of the Mainland and the "Fast Forward Button" of the World (2017-2022)

In 2017, mainland China implemented a comprehensive halt policy on the virtual asset market, pressing the "pause button" on the development of digital assets. This strict "lockdown" inadvertently became a "catalyst" for the global cryptocurrency industry, triggering a wave of talent, capital, and projects "going overseas."

During this period, Hong Kong's role has been more cautious and subtle; it serves both as a "firewall" to prevent risk spillover and quietly becomes a "watchtower" for observing the global development of Web3. The Hong Kong government actively explores the practical applications of blockchain technology and has conducted explorations in central bank digital currencies (CBDC) and the tokenization of real-world assets (RWA).

1.2 The Key to the Game: Hong Kong's "Move" and Strategic Intent (2023-2025)

At the end of 2022 to 2023, Hong Kong's digital asset regulatory policy has undergone a landmark shift. The Hong Kong SAR government released the "Policy Declaration on the Development of Virtual Assets in Hong Kong," clearly stating that it will "actively promote" the development of the virtual asset ecosystem. Subsequently, Hong Kong further approved the virtual asset spot ETF and designated that the "Stablecoin Regulation" will officially come into effect on August 1, 2025.

Choosing to "open the door" at this time can be interpreted as a high-level strategic choice at the national level. Hong Kong's "pilot first" policy has also received positive interaction and response from mainland cities, indicating a potential model of "pilot in the Hong Kong area, interaction with the mainland."

Hong Kong Digital Asset "Twin Peaks Regulation" Framework

Hong Kong's digital asset regulatory system is characterized by its "Twin Peaks" model, where the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) collaborate to create a regulatory environment that encourages financial innovation while strictly adhering to risk thresholds.

The SFC focuses on the "investment" attributes of virtual assets, while the HKMA emphasizes their "payment" functions. This dual-peak model, with clear responsibilities and powers, constitutes a solid institutional guarantee for Hong Kong to develop into a global leading virtual asset center.

Core Analysis of VASP Licensing and Stablecoin Issuance Regulation

3.1 VASP Licensing System: Defining Red Lines for Trading Platforms

The VASP licensing system requires all centralized virtual asset trading platforms (VATP) operating in Hong Kong or serving Hong Kong investors to be licensed, regardless of whether they trade security tokens. This system focuses on investor protection, customer asset security and financial soundness, anti-money laundering/anti-terrorism financing (AML/CFT), token listing, and trading scope.

3.2 Stablecoin Regulatory Framework: Establishing Rules for "Quasi-Money"

Hong Kong's stablecoin regulatory framework focuses on "designated stablecoins" pegged to one or more fiat currencies. Core requirements include 1:1 full reserves, transparency and reliability, and robust operations. The HKMA will adopt a highly cautious approach during the initial phase of licensing and has set up a "sandbox" mechanism allowing interested institutions to test their business models and risk management capabilities in a controlled environment.

The Regulatory Sandbox Overview Process from the Applicant's Perspective

Hong Kong's "regulatory sandbox" is essentially a "dialogue mechanism between regulation and innovation" and a "testing ground for risk isolation." The design of the entire process reflects the rigor, interactivity, and penetrability of Hong Kong's regulatory authorities, including three main stages: preparation, testing, and evaluation.

Regulatory Sandbox ------ A Typical Case on the Path to Compliance

5.1 Stablecoin Regulatory Sandbox: Pragmatic Approach, Addressing Pain Points

The first batch of participants entering the sandbox includes JD Coinchain Technology (Hong Kong), Yuan Coin Technology, and a consortium formed by Standard Chartered Bank (Hong Kong), Anni Group, and Hong Kong Telecom.

5.2 Ensemble Sandbox: Innovative Financial Market Infrastructure to Facilitate Tokenized Applications

The Ensemble project aims to promote interbank tokenized deposit settlement using wholesale central bank digital currency (wCBDC) and the trading of tokenized assets using tokenized currency. The project covers multiple areas of use cases including green and sustainable finance, trade and supply chain financing, fixed income and investment funds, and liquidity management.

Future Outlook

With the formal implementation of the "Stablecoin Regulations", Hong Kong will gain a more solid institutional foundation and broad development space for promoting stablecoin application scenarios, expanding the variety of tokenized products, and enhancing the liquidity and popularity of stablecoins and tokenized financial products.

Hong Kong is expected to rise as a key node for global digital assets and a core hub for the tokenization of real-world assets, building an unparalleled unique competitive advantage.