Interview with the Secretary for Financial Services and the Treasury, Chan Mo-po: How to promote Hong Kong's upgrade from a testing ground for digital assets to a global hub for digital asset innovation through the "LEAP" framework.

Source: Zijing News

Written by: Wang Huijuan

In the process of accelerating the development of the global digital economy, Hong Kong is seizing the opportunity for the development of digital assets with a clear strategic layout. On June 26, the SAR government issued the "Hong Kong Digital Asset Development Policy Declaration 2.0" ("Policy Declaration 2.0"), reiterating its vision of making Hong Kong a global innovation center in the field of digital assets. The Financial Secretary of the Hong Kong SAR Government, Paul Chan, recently accepted a written interview with this publication, systematically elaborating on the core essence of the "Policy Declaration 2.0" and detailing Hong Kong's practical paths in areas such as digital asset regulation, stablecoin development, tokenization applications, and ecological construction, showcasing the firm determination to promote Hong Kong as a global innovation center in the field of digital assets.

Chen Maobo

The iteration of policies has shifted from "framework construction" to "in-depth ecological cultivation".

"Our goal is to steadily advance the development of the digital asset industry. We hope that Hong Kong will establish a responsible, sustainable digital asset ecosystem that is deeply integrated with the real economy," said Chan Mo-po. The first policy declaration published in October 2022 indicated that the SAR government's attitude towards the development of the digital asset industry is open and inclusive. At the same time, the SAR government intends to work with financial regulatory bodies to create a more convenient environment to promote the sustainable and responsible development of Hong Kong's digital asset industry. Chan Mo-po pointed out, "As an international financial center and innovation technology hub, Hong Kong is striving to embrace the major trend of digital asset development, actively leading and promoting relevant innovative exploration and development while balancing 'appropriate regulation' and 'promoting development'. Over the past two years since the first declaration was issued, Hong Kong has made considerable progress in regulatory frameworks and practical explorations."

Since June 2023, the government of the special administrative region has implemented a licensing system for digital asset trading platforms, with 11 platforms already licensed and another 9 applications currently being processed; the government has issued tokenized green bonds totaling approximately HKD 6.8 billion on two occasions, and proactively demonstrated the benefits of tokenization, evidencing the application value of blockchain technology in the financial sector; the "Stablecoin Ordinance," effective August 1 of this year, marks a significant step forward in the regulation of new financial instruments in Hong Kong.

Digital assets are a track with significant transformative potential in the fintech field, and Hong Kong is seizing this opportunity with an open yet prudent attitude. The core of the first policy declaration in 2022 is "breaking the ice," which clearly defines regulatory guidance and initiates experimental plans to lay the foundation for industry development; while the key to "Policy Declaration 2.0" is "deepening," promoting Hong Kong's upgrade from a digital asset "testing ground" to a global hub for digital asset innovation through the "LEAP" framework.

The "LEAP" framework proposed in the "Policy Declaration 2.0" is a systematic plan by the team led by Chan Mo-po for the development path of digital assets in Hong Kong. Chan Mo-po stated, "The declaration indicates that the HKSAR government is committed to making Hong Kong a global innovation center in the field of digital assets and signifies that Hong Kong is moving towards forming a trusted, sustainable ecosystem of digital assets that are deeply integrated into the real economy." He interpreted that "L" (i.e., Legal and regulatory streamlining) focuses on building a comprehensive regulatory framework, "We are constructing a complete regulatory framework for digital asset service providers. The current focus is on establishing a licensing system for digital asset trading and custody service providers. We are conducting public consultations on the relevant legislative proposals with the Securities and Futures Commission (SFC) to finalize the details of the legislative proposals as soon as possible." "E" (i.e., Expanding the suite of tokenised products) aims to enrich application scenarios, including regularizing the issuance of tokenized government bonds and providing policy incentives for tokenizing real assets such as gold and renewable energy, "We are preparing to issue the third batch of tokenized bonds and will regularize the issuance of tokenized government bonds. At the same time, we are also providing encouragement for the tokenization of real-world assets, such as clarifying the exemption of stamp duty on the transfer of tokenized exchange-traded funds (ETFs)." "A" (i.e., Advancing use cases and cross-sectoral collaboration) focuses on exploring the application of stablecoins in cross-border payments and supply chain management, "Stablecoins provide a cost-effective alternative outside the traditional financial system. We encourage the market to propose suggestions on how to experiment with and use licensed stablecoins, such as improving the efficiency of cross-border payments." Chan Mo-po also mentioned that while announcing the "Policy Declaration 2.0", Cyberport simultaneously launched the "Blockchain and Digital Asset Pilot Funding Scheme" to provide up to HKD 500,000 in funding for local robust blockchain and Web 3.0 application projects, driving innovative application practices and promoting the sustainable development of the industry. "P" (i.e., People and partnership development) focuses on nurturing professional talent and deepening international regulatory collaboration, "We will collaborate with the industry and academia to promote talent training and development, positioning Hong Kong as an excellent center for digital asset knowledge sharing, and facilitating cooperation with other jurisdictions, including joint research programs and cross-border regulatory collaboration, while continuously expanding the talent pool."

The proposal of the "LEAP" framework has strongly promoted Hong Kong to form a trustworthy, sustainable, and deeply integrated digital asset ecosystem within the real economy. The "Policy Declaration 2.0" also covers broader and more specific policy directions and measures. From departmental regulation to inter-agency collaboration, from pilot exploration to ecosystem construction, Hong Kong's digital asset policy is achieving a qualitative leap. The iteration of digital asset policies is underpinned by a profound understanding of market dynamics. It is necessary to prevent risks through clear rules while leaving space for innovation; to attract high-quality global projects to settle in Hong Kong while safeguarding the rights and interests of investors and the general public.

Chen Maobo stated that digital assets are an important and highly potential part of financial technology. Through blockchain technology, it enables more efficient and lower-cost financial transactions, making financial services more inclusive. "The 'Policy Declaration 2.0' demonstrates our vision for the development of digital assets and showcases the practical application of tokenization, promoting the diversification of application scenarios. By combining prudent regulation with encouragement of market innovation, we aim to build a more robust digital asset ecosystem that integrates with the real economy and social life, bringing benefits to the economy and society, while further consolidating Hong Kong's leading position as an international financial center," said Chen Maobo.

The balance between "safety" and "innovation" in stablecoin regulation

Stablecoins are the link between traditional finance and digital finance, and their regulation must balance risk control with functionality. Chan Mo-po pointed out that "stablecoins are relatively new financial instruments that possess attributes of traditional financial tools, as well as their own unique characteristics. As a payment tool, stablecoins serve as products that connect traditional finance with digital assets, facilitating cross-border use. However, the anonymity features of stablecoins may pose regulatory risks, including challenges related to anti-money laundering."

The global stablecoin market has reached a scale of 240 billion USD, with trading volume exceeding 20 trillion USD in 2024, and its applications in payment settlement and capital market activities are becoming increasingly widespread. In the future, stablecoins will be used more broadly, and how to properly manage various intrinsic and spillover risks is gradually becoming a focus for international regulatory agencies.

"Considering the risks associated with the issuer's business, the protection of users, and the market's capacity and long-term development, the government has set quite high thresholds for licensing, planning to issue only a few licenses in the initial stage," Chan Mau-po emphasized. Clearly, this "rigorous" strategy is not to restrict development, but to cultivate "responsible innovation." "Stablecoin issuers that are granted licenses must have sustainable business plans, the relevant stablecoins must have practical application scenarios, and they must operate their businesses in a stable and sustainable manner, as well as earn the trust of market participants, ensuring that their stablecoins have a certain degree of acceptance," Chan Mau-po stated. "From a compliance perspective, stablecoin issuers must possess sufficient support, critical capabilities, and experience in various fields, such as management of reserve assets and asset security, effective price stabilization mechanisms, comprehensive and feasible redemption policies, and capabilities in areas such as technological security, risk control, and anti-money laundering, among others."

The "cross-border" and "innovative" nature of stablecoins presents a dual challenge for regulation. Chan Mo-po and his team are committed to addressing this issue reasonably. Chan emphasized that "the application scenarios of stablecoins involve other regions, and license applicants must have a comprehensive compliance plan and sufficient resources to ensure that both they and their business partners hold the necessary licenses, and that they comply with the relevant regulations of Hong Kong and other regions when engaging in stablecoin-related activities." On one hand, due to its applications possibly involving multiple jurisdictions, an international cooperation mechanism needs to be established; on the other hand, due to the rapid pace of technological iteration surpassing regulatory updates, flexibility in regulation must be maintained. When discussing market development, license applicants must demonstrate a concrete and feasible business plan, as well as adequate technical and financial resources to support operations, ensuring that their business can be sustained and operated stably. Specifically, applicants need to propose how to effectively address the pain points in economic and financial activities through stablecoins, and licensed issuers must prove that their stablecoins can genuinely address the pain points of economic activities, such as shortening settlement times in cross-border trade and enhancing capital turnover efficiency in supply chain finance. They must also explain how to maintain sufficient usage and have enough resources for continuous operational development. Chan Mo-po revealed that after the regulations come into effect, the Monetary Authority will promptly initiate the license approval process, while encouraging the market to explore scenario innovations under compliance, allowing stablecoins to truly serve the real economy.

Additionally, the Securities and Futures Commission (SFC) released the newly formulated "ASPIRe" roadmap on February 19 this year, outlining 12 key measures under five major pillars to enhance the innovation, growth, and security of Hong Kong's digital asset market. The five pillars of the "ASPIRe" roadmap are Access, Safeguards, Products, Infrastructure, and Relationships. These measures will facilitate connections with global liquidity, achieve security-based adaptive compliance and product frameworks, and promote the upgrading of traditional financial services through the use of blockchain technology in infrastructure. Based on the "ASPIRe" roadmap, the SFC issued regulatory guidelines on April 7 this year to licensed virtual asset trading platforms regarding their provision of Staking services, as well as guidelines for SFC-approved funds investing in digital assets related to participation in staking activities.

As major countries and regions around the world gradually establish regulatory frameworks related to stablecoins, Hong Kong will continue to cooperate with the international community to jointly promote financial stability and innovation. Hong Kong's response strategy is "dynamic adaptation," which not only upholds the risk bottom line but also adjusts regulatory details through regular assessments, ensuring that the rules do not lag behind innovation and do not tolerate risk spillover.

After the "Stablecoin Regulations" come into effect, the financial management bureau will promptly initiate the license approval process.

The wave of tokenization has shifted from "financial instruments" to "pervasive across all fields."

Tokenization is not merely about "putting assets on the blockchain"; it is a revolutionary efficiency improvement to traditional economic activities. The government of the special administrative region has clearly defined the "normalization" of tokenized bond issuance, and is currently preparing for the third batch of issuance, with the expectation that a "regular and scaled" issuance mechanism will be established in the future, providing standardized samples of tokenized financial products for the market. Meanwhile, the special administrative region government is lowering the barriers to tokenizing real assets through policy innovation. For example, tokenized exchange-traded funds (ETFs) can be exempted from stamp duty during transfers, which will significantly enhance product liquidity and attract more institutional participation.

The potential of tokenization goes far beyond finance. In the field of precious metals, the tokenization of gold and non-ferrous metals can lower investment barriers, allowing small and medium-sized investors to conveniently participate in the commodity market; in the green economy sector, the tokenization of renewable energy assets such as solar panels can attract social capital into environmental projects, aiding the achievement of the "dual carbon" goals. Chan Mo-po reiterated that the "Blockchain and Digital Asset Pilot Grant Scheme" launched simultaneously by Cyberport has provided grants of up to HKD 500,000 for relevant projects. Several cross-industry application projects have already entered the promotion stage.

The core value of tokenization is "improving efficiency and reducing costs." Taking tokenized bonds as an example, their settlement time has been shortened from the traditional T+2 to a matter of minutes, significantly lowering issuance costs; if promoted to supply chain finance in the future, it could achieve "settlement upon transfer of ownership" through smart contracts, addressing the pain points of financing difficulties and long payment terms for SMEs. These practices are not about technological "showmanship," but rather truly reducing costs and increasing efficiency in economic activities, which is the significance of the development of digital assets.

Ecological construction of "talent + collaboration" to strengthen the foundation of development

The competition in digital assets is essentially a competition of talent and industry ecology. Chan Mo-po places great emphasis on "talent and partner development" when discussing the "LEAP" framework, and will cooperate with the academic community to cultivate a new generation of technical experts. To achieve the goal of developing Hong Kong into a knowledge hub for digital assets, it is essential to build a talent ecosystem characterized by "a continuous flow of talent and seamless collaboration," forming a sustainable talent pool that nurtures local talents while also gathering global resources.

Currently, governments, universities, and industries have launched relevant talent training courses for digital assets. The "Policy Declaration 2.0" clearly positions Hong Kong as a "Center for Digital Asset Knowledge Sharing and International Cooperation," proposing to promote joint research, regulatory dialogue, and global talent exchange. The University of Hong Kong's School of Professional and Continuing Education (HKU SPACE) offers a "Certificate (Unit: Cryptocurrency Investment Decoding)" course, covering blockchain technology, cryptocurrency trading, DeFi applications, etc., and is included in the funding scope of the Continuing Education Fund. The Hong Kong Securities and Investment Institute (HKSI) launched the "Certificate for Virtual Asset Professionals" (CVAP) course this March, designed in collaboration with the Securities and Futures Commission to provide training for financial practitioners. Hong Kong Cyberport also launched the "Blockchain and Digital Assets Pilot Funding Scheme" this year to support the technological implementation of start-ups.

In terms of international collaboration, Hong Kong's unique advantage lies in the "dual market connectivity" under the "one country, two systems" framework, which not only deeply integrates into the national opening-up landscape but also seamlessly connects with international market rules. Currently, Hong Kong is exploring the collaborative development path of "offshore digital assets and onshore financial markets" with the mainland, such as researching the application of offshore RMB stablecoins in cross-border trade, complementing the digital RMB pilot; at the same time, it is establishing a "regulatory sandbox interconnection" mechanism with regulatory agencies such as those in Singapore and the UK, allowing innovative projects to be tested and applied across multiple jurisdictions.

Hong Kong's goal is not to "keep to itself," but to provide a "Hong Kong solution" for the development of global digital assets. The implementation of the "Policy Declaration 2.0" will promote the construction of a digital asset ecosystem in Hong Kong that is "responsible, sustainable, and deeply integrated with the real economy." In the next 3-5 years, Hong Kong is expected to become a core hub for the trading of tokenized assets globally, a testing ground for innovative applications of stablecoins, and a gathering place for digital asset talent, making "Hong Kong Digital Assets" another global calling card following "Hong Kong Finance."

Currently, under the "One Country, Two Systems" principle, Hong Kong functions as a "firewall" and a "testing ground", adhering to the principle of "same business, same risk, same rules". It takes a prudent approach to promote the sustainable development of the digital asset industry. The development of the digital asset market is rapidly changing, and Hong Kong will continue to closely monitor relevant trends, focusing on risk prevention and control, while continuously optimizing and establishing a regulatory system that is both tailored to local circumstances and aligned with international standards and practices, to truly promote the healthy, responsible, and sustainable development of Hong Kong's digital asset market.

From the meticulous refinement of the regulatory framework to the continuous expansion of application scenarios, from the careful cultivation of local talent to the extensive gathering of international resources, Chan Mo-po and his team are steadily and firmly pushing Hong Kong to accelerate in the digital asset sector. Chan Mo-po admitted, "As an international financial center, we firmly believe that Hong Kong's path to advancing the digital asset industry can provide experience and references for the development of the global digital asset market." This dual exploration of finance and technology driven by policy innovation not only concerns the future of Hong Kong's financial market but will also contribute unique "Hong Kong wisdom" to the development of the global digital economy.