Breaking News! Full Interpretation of "Hong Kong Digital Asset Development Policy Declaration 2.0"

Organizer: KarenZ, Foresight News

Original title: Key points! What does the Hong Kong Digital Asset Development Policy Declaration 2.0 say?

On June 26, the Hong Kong SAR Government released the "Hong Kong Digital Asset Development Policy Declaration 2.0" (referred to as "Policy Declaration 2.0"), dedicated to focusing on enhancing the liquidity of digital asset trading, promoting a more diversified supply of digital asset products, empowering industry development, facilitating inclusive finance, cultivating talent, and thereby strengthening Hong Kong's position as a global digital asset hub.

The "Policy Declaration 2.0" is also the next stage of development following the Hong Kong Securities and Futures Commission's release of the "ASPIRe" roadmap in February this year. (The "ASPIRe" roadmap covers a new regulatory framework for over-the-counter trading of virtual assets and virtual asset custody services, and will also promote the expansion of virtual asset products and services.)

TL;DR

1. Propose the "LEAP" framework, which consists of four main frameworks: optimizing legal and regulatory aspects, expanding the variety of tokenized products, advancing the application scenarios of digital assets (including stablecoins) and cross-sector collaboration, as well as talent and partner development.

2. The Hong Kong Financial Services and the Treasury Bureau and the Securities and Futures Commission will soon conduct public consultations on the licensing mechanism for digital asset trading service providers and digital asset custodian service providers.

The Securities Regulatory Commission will be the main regulatory body for digital asset trading service providers and custodial service providers, responsible for licensing and registration, setting standards, and optimizing regulatory processes.

4. The Monetary Authority, as the frontline regulatory agency of banks, supervises their digital asset trading and custody activities.

5. The Hong Kong government will regularize the issuance of tokenized government bonds in the future and will also promote the application of tokenization in various fields such as precious metals (like gold), non-ferrous metals, and renewable energy.

6. The exemption from stamp duty on the transfer of all ETFs listed on the Hong Kong Stock Exchange also applies to tokenized ETFs.

7. Hong Kong will implement a regulatory framework for stablecoin issuers starting from August 1, 2025. Market participants are welcome to suggest how the government can experiment with and utilize licensed stablecoins.

8. Cyberport will assist the government in building a stable reserve of professional talent.

The following are the key points of the "Policy Declaration 2.0":

The policy proposes the "LEAP" framework, which aims to create a trustworthy, sustainable, and deeply integrated digital asset ecosystem within the real economy. Specifically, it includes:

1. Optimizing Legal and Regulatory (Legal and regulatory streamlining)

1. A unified and comprehensive regulatory framework: covering digital asset exchanges, stablecoin issuers, digital asset trading service providers, and custodial service providers, with a focus on investor and consumer protection.

• The main measure for the next step is to conduct public consultations on the licensing mechanism for digital asset trading service providers and digital asset custody service providers.
• The Hong Kong SAR government recommends designating the Securities and Futures Commission as the primary regulatory authority for digital asset trading service providers and custodial service providers, responsible for licensing and registration matters, establishing standards, and optimizing regulatory processes.
• The Monetary Authority serves as the frontline regulatory agency for banks, overseeing their digital asset trading and custody activities.
• Hong Kong will continue to implement international standards related to digital assets, including the International Organization of Securities Commissions' "Policy Recommendations on Crypto and Digital Asset Markets", the Financial Stability Board's "Global Regulatory Framework for Crypto Asset Activities", the Basel Committee on Banking Supervision's "Prudent Treatment of Crypto Asset Risk", and the Organization for Economic Cooperation and Development's "Crypto Asset Reporting Framework" to promote tax transparency.

2. Review of Tokenization Laws and Regulations: The Treasury and the Monetary Authority will lead the review of relevant laws and regulatory frameworks, referencing international experiences to promote further application of tokenization in Hong Kong. The initial focus will be on the bond market that has passed the concept verification stage, thoroughly examining the issuance and trading processes of tokenized bonds, including but not limited to settlement, registration, and record-keeping requirements.

2. Expanding the suite of tokenised products

1. Tokenized government bond issuance will be regularized: The government has issued tokenized green bonds totaling approximately HKD 6.8 billion on two occasions, and will regularize the issuance of tokenized government bonds in the future.

2. Promote the tokenization of real-world assets and financial assets:

• Through the Hong Kong Monetary Authority's Ensemble project, innovative application scenarios are encouraged, including the tokenization of traditional financial products (such as money market funds and other funds) and the income streams of real-world assets. The Monetary Authority is exploring the establishment of an Ensemble infrastructure to facilitate the settlement of interbank tokenized deposits, aiming to simplify processes and enhance liquidity.
• The London Metal Exchange has included Hong Kong in its global warehouse network for licensed delivery locations, and the government encourages the market to apply tokenization and physical asset tracking technology in its warehousing programs.
• The government will intensify efforts to expand tokenization schemes, promoting applications in various fields such as precious metals (like gold), non-ferrous metals, and renewable energy (such as solar panels).
• The exemption from stamp duty for all ETF transfers listed on the Hong Kong Stock Exchange also applies to tokenized ETFs.
• The government will submit legislative proposals to include specified digital assets in the qualification for profits tax exemptions for privately offered funds and family investment control tools. If the proposal is passed by the Legislative Council, the tax exemption will take effect from the 2025/2026 tax year.

3. Advancing use cases and cross-sectoral collaboration

1. Support for stablecoins and other tokenized projects, including discussions on using stablecoins as payment tools: Hong Kong will implement a regulatory regime for stablecoin issuers starting August 1, 2025. This regime sets requirements for reserve asset management, stabilization mechanisms, redemption processes, and prudent risk management, promoting the research and implementation of plans by licensed stablecoin issuers in various application scenarios. Market participants are welcome to suggest how the government can experiment with and utilize the licensed stablecoins.

2. Promote collaboration among regulatory agencies, law enforcement agencies, and technology providers: Hong Kong Cyberport will collaborate with relevant stakeholders in the digital asset industry to leverage its incubation ecosystem for support, including business matching opportunities, technical support, industry expert guidance, and participation in accelerator programs related to digital assets and Web3. Cyberport will also launch a funding program for blockchain and digital asset pilot projects to provide financial support and assistance to applications with future application potential, iconic status, and market influence.

3. The Investment Promotion Agency is ready to support digital asset service providers in establishing and expanding their business in Hong Kong.

4. Hong Kong Exchanges and Clearing Limited has launched the first digital asset index in Hong Kong, providing investors with a transparent and reliable benchmark for Bitcoin and Ethereum prices within the Asian time zone.

5. Encourage the development of digital asset infrastructure, including but not limited to various regulatory technology, cybersecurity, and monitoring solutions with local experience and deep regional expertise. The government will promote cooperation between technology providers, regulatory agencies, and law enforcement agencies.

4. People and Partnership Development

1. Continue to encourage training and talent development in the digital asset industry, with a particular focus on blockchain applications, artificial intelligence integration, and digital asset innovation. In the future, Cyberport will assist the government in building a stable reserve of professional talent through relevant measures.

2. The government will promote strategic cooperation between universities and industry to connect academic research with practical applications in the digital asset field. Joint research programs will focus on developing new blockchain applications, tokenization frameworks, monitoring, and AI-driven financial tools.

3. The government will strengthen cooperation between regulatory and enforcement agencies, coordinate the work of local regulatory and enforcement agencies, support the development of a transparent, safe, and resilient digital asset market, and will also support and participate in international cooperation with regulatory agencies.