Alongside the Consensus Web3 conference in Hong Kong (where our own contributor Michael Bacina spoke), the city's regulator unveiled a new comprehensive roadmap with twelve initiatives seeking to “future-proof” Hong Kong’s virtual asset ecosystem and develop HK's crypto regulatory framework.
Under this "A-S-P-I-RE" roadmap, Hong Kong's Security and Futures Commission (SFC) proposes 12 initiatives under 5 pillars: Access, Safeguards, Products, Infrastructure, and Relationships. Below is a summary of these initiatives.
Pillar A (Access) – Streamline market entry through regulatory clarity
Pillar A focuses on fostering an inclusive ecosystem by aligning regulatory expectations with global participation. The SFC is seeking to attract qualified participants, enhance investor choice, and integrate Hong Kong with global liquidity.
Initiatives under this Pillar A are:
Initiative 1: Establish licensing regimes for crypto OTC trading and custody services; and
Initiative 2: Attract global platforms, order flows and liquidity providers.
Pillar S (Safeguards) – Optimising compliance burdens without compromising security
Pillar S aims to facilitate a secure and competitive cryptocurrency ecosystem by harmonising compliance requirements with competitive global standards, adopting a flexible and outcome-driven regulatory approach, and empowering market participants through clarity and proportionality. This aims to ensure robust investor protection while enabling sustainable market growth, and will need to balance compliance costs which are ultimately paid by consumers.
Initiatives under this Pillar S are:
Initiative 3: Explore adopting a dynamic approach to custody technologies and storage ratios;
Initiative 4: Enhance insurance and compensation frameworks; and
Initiative 5: Clarify investor onboarding and product categorisation.
Pillar P (Products) – Expand product offerings and services based on investor categorisation
Pillar P focuses on expanding the range of crypto products and services available in Hong Kong’s regulated market, specifically tailored to meet the diverse needs of different investor categories. The SFC aims to enable risk-appropriate crypto investment tools for investors, to try and foster market development while implementing robust safeguards to protect retail investors. This approach seeks to create a balanced regulatory environment that not only encourages the introduction of innovative products but also protects retail investors from potential risks, which is a challenging line to walk.
Initiatives under this Pillar P are:
Initiative 6: Explore regulatory framework for professional investor-exclusive new token listings and virtual asset derivative trading;
Initiative 7: Explore virtual asset margin financing requirements aligned with securities market risk management safeguards; and
Initiative 8: Consider allowing staking and borrowing/lending services under clear custody and operational guidelines.
Pillar I (Infrastructure) – Modernise reporting, surveillance and cross-agency collaboration
Pillar I centres on equipping and strengthening the SFC’s capability in market-wide oversight through the use of new technology tools and infrastructure building. The SFC’s vision is to consolidate cross-agency collaboration and create a prominent solution for monitoring and surveillance of risks and illicit activities in the region.
Initiatives under this Pillar I are:
Initiative 9: Consider solutions for efficient regulatory reporting and deploy advanced surveillance tools to detect illicit activities; and
Initiative 10: Strengthen local cross-agency collaboration and promote cross-border cooperation with global regulators.
Pillar Re (Relationships): Empower investors and industry through education, engagement and transparency
Pillar Re aims to empower both investors and industry participants through fact-based and authentic information exchanges. By equipping the public with the knowledge needed to navigate the complexities and risks of virtual assets, the SFC seeks to foster an informed community that can actively engage with this evolving landscape. The emphasis on the importance of transparency in the policymaking process also ensures that industry stakeholders are ready to contribute constructively to regulatory developments.
Initiatives under this Pillar Re are:
Initiative 11: Consider regulatory framework for financial influencers (Finfluencers) to address new investor engagement channels; and
Initiative 12: Cultivate sustainable communication and talent network.
The SFC says this regulatory roadmap represents a
forward-looking commitment to addressing the virtual asset market’s most pressing challenges.
The regulator also emphasises that the roadmap is not a final destination but a living blueprint, one that invites collective efforts to advance Hong Kong’s vision as a global hub where innovation thrives within guardrails. Many jurisdictions have developed roadmaps, but as is being seen in the USA now, the industry is hungry for clear rules and for practical pathways forward. HK continues towards a dual-licensing model which may well see crypto companies burdened with greater regulation than in competing jurisdictions like Singapore. If compliance and regulation does not strike the right balance, Hong Kong’s framework may not gain traction with industry and local users may continue to seek out riskier offshore providers who are not subject to any regulation, which creates a challenging environment for regulators to operate in.
Written by S Pettigrove and J Huang with Michael Bacina
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