Interpreting Hong Kong’s “Digital Asset Declaration 2.0”: How to compete for the Asian Web3 center?

Author: Wu said blockchain

On June 26, the Hong Kong Special Administrative Region Government issued the "Hong Kong Digital Asset Development Policy Declaration 2.0", expressing its determination to build Hong Kong into a world-leading digital asset center, a trustworthy market that allows innovation to flourish in an environment with controllable risks and brings substantial benefits to the real economy and financial markets.

The Hong Kong Declaration was released at a time when Singapore issued a strict policy to drive out unlicensed institutions. Legend Trading CEO Hao said that in the next 2-3 years, Singapore's influence on the Web3 industry will become smaller and smaller. There are only 33 licensed companies in total, and about half of these companies have little competitiveness in markets outside Singapore. Some are just subsidiaries of large groups in Singapore, and the licenses only allow them to serve the Singapore market, and they can only do spot transactions. Many company founders will stay in Singapore for family life, but the team will try to place them in other countries. Well-known analyst Zheng Di said that the next Web3 center is Hong Kong, and he is very optimistic about Hong Kong. Singapore suffered huge losses due to Temasek's investment in FTX, and many people from Singapore do not need the currency circle at all. Hong Kong will regain its position as the global center of Web3 because of Singapore's move.

The Hong Kong Declaration states that in order to achieve this vision and goal, and to build a digital asset ecosystem that is deeply integrated with the real economy and financial markets and is future-oriented, a series of strategic policy directions are proposed and corresponding measures will be implemented. When formulating policy directions and measures, we must ensure that they are not limited by current technology and can adapt to the future development of digital assets while integrating into the real economy and financial system to achieve sustainable growth. These measures are based on the "LEAP" framework, namely: optimizing legal and regulatory streamlining; expanding the suite of tokenized products; advancing use cases and cross-sectoral collaboration; and people and partnership development, in order to build a trustworthy, innovative and dynamic digital asset ecosystem and strengthen Hong Kong's leading position in the global financial landscape.

The declaration stated that the next major measure is to conduct public consultation on the licensing mechanism for digital asset trading service providers and digital asset custody service providers to meet investors' needs in finding high liquidity, large-volume transactions and secure custody assets. The government proposes to designate the SFC as the main regulator of digital asset trading service providers, responsible for licensing and registration, setting standards, optimizing regulatory processes, and reducing potential regulatory arbitrage under different digital asset regulatory frameworks. The Hong Kong Monetary Authority will serve as the frontline regulator of banks to supervise their digital asset trading activities. The SFC will serve as the main regulator of digital asset custody service providers, responsible for licensing and registration, as well as setting standards, while the HKMA will serve as the frontline regulator of banks to supervise their digital asset custody activities.

The declaration stated: The Treasury and the HKMA will take the lead in reviewing the relevant legal and regulatory frameworks, with reference to international experience and practices, to promote the further application of tokenization in Hong Kong. The initial review will focus on the bond market that has passed the proof-of-concept stage, and it is also hoped that it can provide reference for the tokenization of other real-world assets and financial instruments. We will comprehensively review the issuance and trading processes of tokenized bonds, including but not limited to settlement, registration and record requirements. The Government will regularize the issuance of tokenized government bonds and explore different currencies and tenor arrangements, as well as other innovative options. The Government hopes to provide the market with a stable and high-quality digital bond through this move, further expanding accessibility and attracting a wider range of investors. To further leverage the advantages of tokenization, the Treasury and the HKMA will continue to communicate with industry experts to understand the views of different aspects of the market, including the inclusion of digital currencies to improve transaction efficiency, secondary market trading application scenarios, and further expanding investor participation in the local bond market. The Government aims to set a global benchmark by taking the lead in issuing tokenized bonds and regularizing them, enhance market confidence in the technology, and encourage adoption by the public and private sectors.

The declaration states: All exchange-traded funds (ETFs) currently listed on the Hong Kong Stock Exchange are exempt from stamp duty on transfer. To promote the development of the tokenized market, the Government will clarify that such stamp duty exemption measures also apply to tokenized ETFs. On the basis of this exemption, the Government welcomes market participants to explore the advantages of tokenizing ETFs, such as money market ETFs, including introducing them for secondary market trading on licensed digital asset trading platforms or other platforms. Looking ahead, the Government will adopt an open attitude and review the tax arrangements for the transfer of other SFC-approved funds after tokenization, taking into account factors such as fiscal impact and market development. The Government will submit legislative proposals to include specified digital assets in eligible transactions for privately offered funds and family investment control vehicles that can enjoy profits tax exemption. If the proposal is passed by the Legislative Council, the tax exemption will take effect from the 2025/2026 tax year.

The declaration stated that it would support stablecoins and other tokenization projects, including exploring the use of stablecoins as payment tools. In order to fully tap the potential of stablecoins, the government and regulators will provide a favorable market environment and necessary regulatory guidance to promote Hong Kong licensed stablecoin issuers to study and implement solutions to different application scenarios to solve the actual pain points in economic activities. To demonstrate the government's support and take the lead, we welcome market participants to make suggestions on how the government can experiment and use licensed stablecoins, such as to improve the efficiency of government payments.

The declaration stated that Cyberport will also launch a blockchain and digital asset pilot funding program to provide funding for applications with future application potential, iconic and market-influential projects. In addition to funding, Cyberport will also provide assistance to these companies and coordinate with relevant stakeholders to support the implementation of pilot projects as needed. The dedicated team of the Government Investment Promotion Agency welcomes and is ready to support digital asset service providers to set up and expand their businesses in Hong Kong. Among the many supports available, Invest Hong Kong can connect potential digital asset service providers with banks and various professional and support services and promote their establishment of businesses.

Wu Jiezhuang, member of the National Committee of the Chinese People's Political Consultative Conference and member of the Legislative Council of Hong Kong, interpreted that the declaration clearly replaced virtual assets with digital assets as a term, which is in line with international standards and emphasizes its innovative leadership as an international financial center in the digital age; the goal is very clear, which is to balance innovation and risk control, attract high-quality global institutions; and to improve the efficiency of financial markets through technologies such as tokenization to serve the real economy; the division of labor is clarified, with the China Securities Regulatory Commission leading the issuance of digital asset trading and custody service licenses, and the Hong Kong Monetary Authority supervising bank-related activities to avoid overlapping functions; it shows the government's friendliness and recognition of digital assets, and the government will submit legislative proposals to include digital assets in eligible transactions for privately issued funds and family investment control tools that enjoy capital gains tax exemptions. At the same time, the SAR government will take practical actions to regularize the issuance of tokenized government bonds; substantially reduce industry operating costs and strive to improve market liquidity. The government will clarify how the stamp duty exemption measures for ETF transfers are also applicable to tokenized ETFs, which will have far-reaching implications for the digital asset industry; provide substantial cash support to improve the market ecosystem. Cyberport will launch a blockchain and digital asset pilot funding program, which will not only attract more talents to join the industry, but also enhance Hong Kong's overall project library; in summary, Hong Kong has a great chance of becoming a benchmark for compliance innovation in digital assets in Asia within 3-5 years, providing a Hong Kong solution for the integration of traditional finance and the digital economy around the world.

Hong Kong Financial Secretary Paul Chan said: Digital assets are an important part of financial technology with great development potential. Through blockchain technology, more efficient and lower-cost financial transactions can be enabled, making financial services more inclusive. The Policy Declaration 2.0 shows our vision for the development of digital assets, and demonstrates the substantive application of tokenization through practice to promote the diversification of application scenarios. By combining prudent regulation and encouraging market innovation, we will build a more prosperous digital asset ecosystem that is integrated with the real economy and social life, bringing benefits to the economy and society, while consolidating Hong Kong's leading position as an international financial center.

Paul Hui, Secretary for the Treasury and the Treasury of Hong Kong, said: "Hong Kong's unique advantages give us an advantage in promoting traditional finance into the digital asset era. The framework set out in the Policy Statement 2.0 will help us move towards "LEAP" to form a trustworthy, sustainable and deeply integrated digital asset ecosystem. The Policy Statement 2.0 also puts Hong Kong at the forefront of digital transformation, providing a clear roadmap for businesses and investors to strategize in a robust and thriving digital asset market."

In an exclusive interview with Ta Kung Pao, Hong Kong Financial Secretary Paul Chan said that Hong Kong is further building a full-chain ecosystem for the development of digital assets with four major strategies: optimizing laws and regulations, expanding product categories, promoting cooperation in application scenarios, and cultivating and developing talents, so as to promote Hong Kong to become a strategic hub connecting China's digital economic opportunities with global financial innovation needs. He emphasized that digital assets are not only a breakthrough in financial technology, but also a key tool for Hong Kong to consolidate its position as an international financial center. Hong Kong will promote the integration of virtual assets and the real economy through the dual-track of licensing management and scenario-based applications. "Stablecoin supervision is the focus. We require that its application must be bound to physical scenarios such as trade settlement and cross-border payments to prevent speculation." At present, Hong Kong has legislated to regulate the issuance of stablecoins. On the other hand, the Securities and Futures Commission has issued licenses for virtual asset exchanges and promoted the supervision of custody. At the same time, "sandbox supervision" provides the industry with innovative experimental space.

Xiao Feng, Chairman of HashKey Group, told PANEWS that there are three key changes in this declaration, including: Stablecoins will be included in the regulation: It is clear that the stablecoin licensing system will be officially implemented on August 1, 2025. This is one of the few jurisdictions in the world that truly gives stablecoins a "landing pass"; RWA tokenization is regarded as a key industry: the government not only promotes the normalization of bond issuance, but also plans to include gold, green energy, electric vehicle assets, etc. in the scope of tokenization; tokenized ETFs and digital asset funds enjoy tax exemptions: If legislation is passed in the future, tokenized ETFs will enjoy the same stamp duty exemptions and profit tax exemptions as traditional ETFs, which is a rewrite of the rules of the game in the financial market. These reforms show a signal: Hong Kong not only supports Web3, but also wants to use the system to make Web3 a part of the financial infrastructure. The update of Hong Kong’s Web3 policy has also completed the “trinity” system closed loop: regulatory certainty: Hong Kong will become the world’s first jurisdiction to clearly stipulate the independent licensing of digital asset custody services; asset penetration: allowing real-world assets (metals, energy) and financial instruments (bonds, ETFs) to be tokenized on an equal basis, breaking the boundary between virtual and real; tax competitiveness: tokenized ETFs are tax-free + digital asset funds are exempt from capital gains tax.