Crypto here to stay, needs to be regulated: Hong Kong treasury chief

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Photos by Peter Parks. Video by Lillian Ding

Hong Kong has decided to let retail investors trade cryptocurrencies under its new regulatory regime because “virtual assets are going to stay,” the city’s minister for financial services said on Tuesday.

Cryptocurrencies have been banned in mainland China since 2021, but the former British colony, which has a separate financial system and regulators, has announced plans to become a major digital asset hub.

Starting June 1, authorities will begin accepting applications for licenses from cryptocurrency exchanges that will allow them to sell major tokens, including bitcoins and ether, to individual traders.

“Despite the potential risks involved, (virtual assets) also carry fundamental value,” Christopher Hui, Hong Kong’s financial services and treasury secretary, told AFP.

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“So for those positives to be exploited, those activities need to be permitted in a regulated way.”

Regulators around the world are looking at cryptocurrencies with renewed urgency after the collapse of the FTX trading platform last year and other high-profile failures in the industry.

Hong Kong was initially hesitant to allow crypto exchanges to accept retail clients, but Hui acknowledged there was “considerable interest” in the trade.

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Asked if Beijing supports Hong Kong’s plans to open up crypto trading, Hui said the financial hub is charting its course by following the emerging global consensus.

“Different jurisdictions will take the right approach for their own market, and Hong Kong is no exception,” he said.

“We are an open market…So while different jurisdictions have different laws and requirements, I think what we should do is based on what we do well.”

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The government’s pivot to crypto and fintech coincides with Hong Kong’s recent reopening after three years of strict Covid policies that isolated it internationally and drove out talent.

Hong Kong’s international business reputation also took a hit when Beijing cracked down on political freedoms after mass pro-democracy protests in 2019.

The promise of new regulations on crypto exchanges has prompted more than 80 inquiries from the city’s investment promotion agency, the Treasury chief told AFP.

“One thing that is very evident is that Hong Kong is back to normal,” he said. “We’re back to business.”

In a public consultation that ended in March, some crypto firms lamented tough proposals that made compliance potentially costly.

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One concession made by regulators was to reduce the insurance coverage requirement to 50% for virtual assets held by customers in “cold storage,” a safer way to store crypto offline.

“For technical reasons, of course, cold storage poses less risk of hacking,” Hui said, saying the change was intended to reflect the risks proportionately.

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Under the new rules, crypto exchanges must assess a client’s risk tolerance and knowledge of cryptocurrencies, and impose risk exposure limits.

“Investors need to be aware of what they are getting into,” Hui said, adding education is a priority.

But authorities have yet to specify the exact threshold of crypto knowledge needed for a retail investor to trade — one of many implementation details left unresolved.

Hong Kong securities regulators will issue guidelines later, Hui said.

Crypto-related scams are a growing problem in Hong Kong, with the city recording more than 2,300 such cases last year with total losses of HK$1.7 billion ($217 million) , according to the police.

“We understand the risk, at the same time we have put in place the right guardrails,” Hui told AFP.

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