Key points! What does Hong Kong's digital asset development policy declaration 2.0 say?

Original author: KarenZ, Foresight News

Reprinted: Luke, Mars Finance

On June 26, the Hong Kong SAR Government released the "Hong Kong Digital Asset Development Policy Declaration 2.0" (referred to as "Policy Declaration 2.0"), dedicated to focusing on enhancing the liquidity of digital asset trading, promoting a more diversified supply of digital asset products, empowering industry development, fostering inclusive finance, cultivating talent, and thereby strengthening Hong Kong's position as a global digital asset center.

The "Policy Declaration 2.0" is also the next stage of development following the Hong Kong Securities and Futures Commission's release of the "ASPIRe" roadmap in February this year. (The "ASPIRe" roadmap covers a new regulatory framework for over-the-counter trading of virtual assets and virtual asset custody services, and will also promote the expansion of virtual asset products and services.)

TL;DR

1. Propose the "LEAP" framework, which consists of four main frameworks: optimizing laws and regulations, expanding the variety of tokenized products, promoting application scenarios for digital assets (including stablecoins) and cross-sector cooperation, as well as talent and partner development.

2. The Hong Kong Financial Services and the Treasury Bureau and the Securities and Futures Commission will soon conduct a public consultation on the licensing mechanism for digital asset trading providers and digital asset custody service providers.

3. The Securities Regulatory Commission will be the main regulatory body for digital asset trading service providers and custody service providers, responsible for licensing and registration matters, establishing standards, and optimizing regulatory processes.

4. The Monetary Authority, as the front-line regulatory body for banks, supervises their digital asset trading and custodial activities.

5. The Hong Kong government will regularize the issuance of tokenized government bonds in the future and will also promote the application of tokenization in different fields such as precious metals (like gold), non-ferrous metals, and renewable energy.

6. The exemption from stamp duty for the transfer of all ETFs listed on the Hong Kong Stock Exchange also applies to tokenized ETFs.

7. Hong Kong will implement a regulatory regime for stablecoin issuers starting from August 1, 2025. Market participants are welcome to suggest how the government can experiment with and utilize licensed stablecoins.

8. Cyberport will assist the government in building a stable reserve of professional talent.

The following are the key points of the "Policy Declaration 2.0":

The policy proposes the "LEAP" framework, aimed at creating a trustworthy, sustainable, and deeply integrated digital asset ecosystem within the real economy. Specifically, it includes:

1. Legal and regulatory streamlining

2. A unified and comprehensive regulatory framework: covering digital asset exchanges, stablecoin issuers, digital asset trading service providers, and custodial service providers, with a focus on protecting investors and consumers.

The main measure for the next step is to conduct public consultations on the licensing mechanism for digital asset trading service providers and digital asset custody service providers.

The Hong Kong SAR government has proposed to designate the Securities and Futures Commission as the main regulatory authority for digital asset trading service providers and custodial service providers, responsible for licensing and registration matters, setting standards, and optimizing regulatory processes.

The Monetary Authority, as the frontline regulatory body for banks, supervises their digital asset trading and custody activities.

Hong Kong will continue to implement international standards related to digital assets, including the International Organization of Securities Commissions' "Recommendations on Crypto and Digital Asset Markets Policy", the Financial Stability Board's "Global Regulatory Framework for Crypto Asset Activities", the Basel Committee on Banking Supervision's "Prudential Treatment of Crypto Asset Risks", and the Organisation for Economic Co-operation and Development's "Crypto Asset Reporting Framework" to promote tax transparency.

2. Review of Tokenization Laws and Regulations: The Treasury and the Monetary Authority will lead the review of relevant laws and regulatory frameworks, referencing international experiences to promote further application of tokenization in Hong Kong. The initial focus will be on the bond market that has passed the proof of concept stage, and a comprehensive examination of the issuance and trading processes of tokenized bonds will be conducted, including but not limited to settlement, registration, and record-keeping requirements.

Expanding the suite of tokenised products

1. Regularization of tokenized government bond issuance: The government has issued tokenized green bonds totaling approximately HKD 6.8 billion on two occasions, and in the future, it will regularize the issuance of tokenized government bonds.

2. Promote the tokenization of real-world assets and financial assets:

Through the HKMA's Ensemble project, innovative application scenarios are encouraged, including the tokenization of traditional financial products (such as money market funds and other funds) and the cash flows of real-world assets. The HKMA is exploring the establishment of Ensemble infrastructure to facilitate the settlement of interbank tokenized deposits, in order to streamline processes and enhance liquidity.

The London Metal Exchange has included Hong Kong as a licensed delivery location in its global warehouse network, and the government encourages the market to apply tokenization and physical asset tracking technology in its warehousing programs.

The government will intensify efforts to expand tokenization programs and promote applications in various fields such as precious metals (like gold), non-ferrous metals, and renewable energy (such as solar panels).

Clarify that the measures exempting stamp duty on the transfer of all ETFs listed on the Hong Kong Stock Exchange also apply to tokenized ETFs.

The government will submit legislative proposals to include specified digital assets in the qualifications for profit tax exemptions for privately offered funds and family investment control tools. If the proposal is approved by the Legislative Council, the tax exemption will take effect from the 2025/2026 tax year.

3. Advancing use cases and cross-sectoral collaboration

4. Support for stablecoins and other tokenized projects, including discussions on using stablecoins as a payment tool: Hong Kong will implement a regulatory regime for stablecoin issuers starting August 1, 2025. This regime sets requirements for reserve asset management, stabilization mechanisms, redemption processes, and prudent risk management, promoting licensed stablecoin issuers in Hong Kong to research and implement solutions for different application scenarios. Market participants are welcome to suggest how the government can experiment with and utilize licensed stablecoins.

5. Promote collaboration among regulatory bodies, law enforcement agencies, and technology providers: Cyberport Hong Kong will collaborate with relevant stakeholders in the digital asset industry to leverage its incubation ecosystem to provide support, including business matching opportunities, technical support, industry expert guidance, and participation in accelerator programs related to digital assets and Web3. Cyberport will also launch a blockchain and digital asset pilot funding scheme to provide funding and assistance for application projects with future application potential, significance, and market impact.

6. The Investment Promotion Agency is ready to support digital asset service providers in establishing and expanding their business in Hong Kong.

7. The Hong Kong Exchanges and Clearing Limited has launched the first digital asset index in Hong Kong, providing investors with a transparent and reliable benchmark for Bitcoin and Ethereum prices within the Asian time zone.

8. Encourage the development of digital asset infrastructure, including but not limited to various regulatory technology, cybersecurity, and monitoring solutions with local experience and deep regional expertise. The government will promote cooperation among technology providers, regulatory bodies, and law enforcement agencies.

9. People and partnership development

10. Continue to encourage training and talent development in the digital asset industry, with a particular focus on blockchain applications, integration of artificial intelligence, and innovation in digital assets. Next, Cyberport will assist the government in building a stable reserve of professional talent through relevant measures.

11. The government will promote strategic cooperation between universities and the industry, connecting academic research with practical applications in the digital asset field. Joint research programs will focus on developing new blockchain applications, tokenization frameworks, monitoring, and AI-driven financial tools, among others.

12. The government will strengthen cooperation between regulatory and law enforcement agencies, coordinate the work of local regulatory and law enforcement agencies, support the development of a transparent, secure, and resilient digital asset market, and will also support and participate in international cooperation with regulatory agencies.

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