Evolution of Hong Kong's Virtual Asset Regulatory Policy Framework

In recent years, virtual assets have rapidly developed globally, posing significant challenges to traditional financial systems and regulatory frameworks. The high volatility and high leverage characteristics of virtual assets have raised a series of new issues for regulators and trading platforms, such as cross-border capital flow supervision, customer identity verification, and the prevention of systemic financial risks. These challenges have made virtual asset regulation a complex topic that requires multi-party cooperation.

As the third-largest financial center in the world, Hong Kong plays a key role in the regulation of virtual assets. Hong Kong needs to seek a balance between promoting the development of the global virtual asset market and maintaining financial stability, and it is also an important window for China to explore emerging financial markets. Therefore, Hong Kong's virtual asset regulatory policies present a complex and diverse character, which is a process of continuous reconciliation between globalization and localization, innovation and prudence.

2017-2021: From Risk Warnings to Institutional Prototype

This stage is the initial period of virtual asset regulation in Hong Kong, primarily focused on risk warnings, gradually introducing pilot regulatory measures. The regulatory attitude is transitioning from a cautious wait-and-see approach to an orderly and standardized one.

In September 2017, the Hong Kong Securities and Futures Commission (SFC) issued its first statement regarding ICOs, indicating that some ICOs may constitute securities and need to be regulated. In December of the same year, the SFC required financial institutions providing cryptocurrency-related products to comply with existing financial regulations.

In November 2018, the Securities Regulatory Commission proposed to include qualified virtual asset trading platforms in a regulatory sandbox. In March and November 2019, the Securities Regulatory Commission issued regulations on STOs and virtual asset futures contracts, and proposed a trading platform licensing system.

In November 2020, the Financial Services and the Treasury Bureau launched a consultation on the amendment of the Anti-Money Laundering Ordinance, planning to include virtual asset service providers in the licensing regime. In May 2021, it was officially confirmed that the VASP licensing regime would be introduced.

During this period, Hong Kong began to define the responsibilities of virtual asset market participants, introducing a preliminary licensing mechanism, but still adhering to the principle of "voluntary participation." The introduction of the regulatory sandbox mechanism provides limited experimental space for emerging financial technologies.

2022: A Key Turning Point for Policy Transformation

The year 2022 became a watershed moment for the regulatory policies on virtual assets in Hong Kong. On October 31, the Financial Secretary issued the first "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. This marks a shift in regulatory thinking from "risk-oriented" to "opportunity-oriented."

This transformation stems from the intensifying international competition and the gathering of diverse demands. Major global financial centers are increasingly enhancing their virtual asset layouts, and Hong Kong needs to maintain its status as a financial center. At the same time, the mainland requires a "testbed" for exploring the digital economy, practitioners hope to find a compliant landing point, and trading platforms are eager for institutional protection. These factors collectively drive the significant adjustment of Hong Kong's virtual asset policies.

Since 2023: Deepening and Transformation of Regulatory Policies

Since 2023, the regulation of virtual assets in Hong Kong has entered the practical implementation stage, shifting from "policy statements" to "regulatory enforcement."

In February 2023, Hong Kong issued its first tokenized green bond. In June, the Securities and Futures Commission implemented the "Guidelines for Virtual Asset Trading Platforms" and launched the VASP licensing system. In the same month, the "Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance" came into effect, requiring virtual asset trading platforms to operate with a license. In August, HashKey became the first licensed exchange open to retail investors.

In November, the Securities Regulatory Commission issued a circular regarding tokenized securities, emphasizing that they still fall under traditional securities and must comply with existing securities regulations. In December, the Monetary Authority and the Securities Regulatory Commission jointly released an updated version of the "Circular on Intermediaries' Virtual Asset-Related Activities," clarifying that virtual asset ETFs are available for compliant sale.

In 2024, Hong Kong continues to advance in the areas of stablecoin regulation, tokenized assets, and RWA projects. The Monetary Authority has launched the "Ensemble Project" and a stablecoin regulatory sandbox plan to explore the integration of tokenized assets with wCBDC. Several RWA projects have been successfully implemented, including projects for charging pile and photovoltaic power station revenue rights.

In early 2025, the Secretary for Financial Services announced the release of the second "Virtual Asset Policy Declaration". In February, Huaxia Fund (Hong Kong) was approved to issue the first tokenized fund for retail investors in the Asia-Pacific region. In March, the number of licensed exchanges increased to 10, and the Securities Regulatory Commission released the "A-S-P-I-Re" regulatory roadmap to deepen market development through five major pillars.

Characteristics of Hong Kong's Regulatory System

Hong Kong adopts a "sandbox-style regulation" strategy based on the existing legal framework, implementing "patchwork" regulation of digital assets through the issuance of guidelines or circulars. This approach reflects Hong Kong's belief that virtual assets are essentially similar to traditional financial assets and can be incorporated into the current financial regulatory system.

The regulatory focus in Hong Kong is on maintaining three lines of defense: financial compliance, anti-money laundering, and investor protection. This approach not only reduces the costs of regulatory coordination but also builds a bridge between financial institutions and emerging technology companies, facilitating the integration of institutional transformation and industrial development.

Overall, Hong Kong's regulatory policy for virtual assets is characterized by a gradual, inclusive, and flexible approach, which ensures financial security while allowing space for innovation. This balanced strategy helps Hong Kong maintain its competitiveness in the global virtual asset arena, while also preserving its status as an international financial center.