Author: Interface News reporter Liu Chenguang
On June 5th, the Chief Executive of the Hong Kong Securities and Futures Commission (hereinafter referred to as the Hong Kong SFC), Ashley Alder, highlighted the importance of harnessing technological power and focusing on Distributed Ledger Technology (DLT) at the Greenwich Economic Forum (Hong Kong).
Alder pointed out that DLT is being applied to virtual assets in the financial market. The resilience of Bitcoin over the past 15 years, despite experiencing numerous cycles of ups and downs, demonstrates its ability to serve as an alternative asset. Furthermore, as the underlying technology of Bitcoin, DLT is expected to withstand the test of time. The potential advantages of DLT are evident, as this technology can enhance the efficiency of physical assets in distribution, clearing, settlement, and custody, while reducing costs.
She emphasized that while the hype around NFTs may have subsided, the technology is gradually being utilized in the world of physical assets, which are becoming tokenized. The potential benefits of this include financial inclusivity, increased transparency and privacy for both parties in transactions, improved settlement efficiency and cost reduction, and the possibility of achieving atomic settlement through tokenization.
Alder believes that the financial services sector can also benefit from these potential advantages and efficiency gains, such as the initial issuance, secondary market trading, custody, and collateral of traditional assets like bonds and money market funds, all of which can be completed on the blockchain. This is the future vision of the financial industry.
“While some markets are moving towards T+1 or even T+0 settlement cycles, most existing financial infrastructure and cross-border payment system processes still operate on T+2, making blockchain models particularly attractive. Today, this vision remains a work in progress,” Alder said.
In Alder’s view, Hong Kong is gradually establishing a Web3 ecosystem. Following the successful issuance of the world’s first digital government green bonds last year, the Special Administrative Region issued a second batch of bonds on a private blockchain in February this year. The issuance, trading settlement, interest payment, and redemption dates of these bonds were all conducted on a private blockchain. With the support of Hong Kong’s legal and regulatory framework, the issuance of green bonds worth HKD 6.8 billion was highly successful, attracting a wide range of institutional investors globally.
Furthermore, to promote the development of Hong Kong’s exchange-traded fund (ETF) ecosystem, the Hong Kong SFC approved the first batch of virtual asset spot ETFs in Asia for retail investors. These six ETFs began trading at the end of April and have since maintained orderly transactions. As of May 31st, the total market value of these ETFs reached USD 301 million, with a daily trading volume of USD 5.8 million.
Alder pointed out that with a commitment to technological neutrality, the Hong Kong SFC adheres to the principle of “same business, same risks, same rules.” Investor protection is a top priority in their work.
She particularly emphasized that the Hong Kong SFC’s support for the Hong Kong Web3 ecosystem does not equate to an endorsement of the asset class of virtual assets. She stated that virtual assets are currently highly speculative and prone to price volatility. Therefore, while meeting investor needs, the Hong Kong SFC has ensured a wide range of investor protection measures. Regarding spot ETFs of virtual assets, the Hong Kong SFC requires that related virtual asset trading must be conducted on virtual asset trading platforms licensed by the SFC, and the virtual assets must be held by these platforms or banks that meet relevant standards. The Hong Kong SFC also requires fund management companies to warn investors of risks and reminds investors to be aware of the significant fluctuations in this asset class.
Last June, the regulatory regime for central trading platforms issued by the Hong Kong SFC officially came into effect. Given the ease with which over-the-counter virtual asset trading can involve fraud and money laundering risks, the Hong Kong SAR government consulted the public earlier this year on the licensing of over-the-counter service providers. These measures will complement efforts to create a robust and transparent regulatory environment for virtual asset trading. The regulatory scope of virtual assets will also be extended to stablecoins, with a new system for regulating fiat-backed stablecoins currently being prepared.
“As is well known, stablecoins are generally issued by non-bank institutions and may be used for payments. Therefore, regulating the issuers of stablecoins will help protect their holders. The Hong Kong Monetary Authority (HKMA) recently completed a consultation on proposals for the new system, which includes requiring issuers to ensure that stablecoins are fully backed by high-quality and liquid reserve assets,” Alder said.
“Will traditional financial services be replaced by smart contracts and DLT on traditional infrastructure one day? When will this happen? These are still unknowns,” Alder admitted, suggesting that market participants who are interested in exploring these possibilities should actively test relevant use cases, while the Hong Kong SFC’s role as a regulator is to provide a clear, certain, and consistent regulatory framework to expand use cases in the market while safeguarding investors.
