The CEO of the Securities and Futures Commission (SFC) of Hong Kong, Julia Leung Fung-yee, addressed Hong Kong’s embrace of Web3 regulation following the collapse of crypto exchange FTX in November 2022, stating that crypto trading is an important part of the virtual asset ecosystem.
During the speech, Leung reportedly explained that the new licensing system for virtual asset providers would ensure that investors are protected while considering the risks that financial institutions face. In her view, incorporating virtual assets providers into the regulatory system was the only way to embrace innovation and strengthen market trust after FTX’s bankruptcy.
Hong Kong used the FTX collapse to reduce regulatory risks associated with centralized exchanges. In December 2022 — less than a month after the exchange crisis unfolded — its legislative council included virtual asset service providers in the same legislation governing traditional financial institutions.
The new rules bring strict Anti-Money Laundering guidelines and investor protection laws to digital asset exchanges looking to open a business in Hong Kong. It also introduces a new licensing scheme that allows retail investors the ability to trade virtual assets. Until recently, digital asset trading was restricted to professional investors and traders with at least $1 million in bankable assets.
According to Leung, Hong Kong’s cryptocurrency licensing system is a good example of China’s “one country, two systems” policy. Cryptocurrencies have been banned in mainland China since 2021, while Hong Kong took a different approach by promoting a welcoming environment for the crypto industry.
Over the past 12 months, more than 150 Web3 firms have established operations in Hong Kong’s Cyberport — a digital hub created by the local government to promote innovation. The influx came after the government allocated 50 million yuan ($7 million) to speed up the development of Web3.