Interpret the impact of the Hong Kong Chief Executive's Policy Address on the Web3 industry

Written by Mlixy, W3C DAO

On 25 October 2023, the HKSAR Government released its 2023 Policy Address, which covers a number of policies and measures related to talent development and introduction, with a view to enhancing Hong Kong's competitiveness and innovation capabilities.

This article will analyze the impact and significance of these policies on the Web3 industry, as well as Hong Kong's advantages and challenges in this field.

What is the Web3 industry? **

The Web3 industry refers to a new generation of Internet applications and services based on blockchain technology and cryptocurrencies, including decentralized finance (DeFi), non-fungible tokens (NFTs), decentralized autonomous organizations (DAOs), decentralized data management, decentralized social media, etc. These apps and services provide a read/write/owned network model that allows users to have financial interests and more control in the online community. Web3 promises to change the way people experience and create value online, just like PCs and smartphones.

The development of Web3 has been promoted and influenced by many aspects, including technological progress, user needs, social changes, policy support, etc. Among them, technological progress is the main driving force, because it continues to improve the performance, security, scalability, interoperability, etc. of blockchain technology, so that more applications and services can be implemented on the blockchain.

User demand is the most immediate motivator, because it reflects people's desire for a freer, fairer, more transparent, and more interesting way to experience online and exchange value. But policy support is the most important guarantee, because it determines the legality, compliance, stability, etc. of the Web3 industry in different regions and countries. **

Hong Kong Talent Related Policy

The following talent-related policies are proposed in the Hong Kong Policy Address:

**Set up a Manpower Services Office to provide support and follow-up to talent coming to Hong Kong; ** **Expand the list of universities under the High-end Talent Pass Scheme and relax visa policies to attract more outstanding international talents to Hong Kong; ** **Implementation of the Capital Investment Entrant Scheme to encourage eligible investors to invest in stocks, funds, bonds and other assets in Hong Kong; **

• ** The Retention Scheme for Vocational Graduates in Hong Kong aims to alleviate the pressure of manpower shortage in the technology industry and enable non-local students to stay in Hong Kong for one year after graduation to look for relevant jobs; **
• • Deeply implement the strategy of strengthening the country with talents, accelerate the construction of the world's important talent centers and innovation highlands, and promote the rational layout and coordinated development of talent regions; **
• **Promote the new engine of the development of the "Northern Metropolis", and deeply connect with Shenzhen and other cities in the Greater Bay Area, divided into four major areas: high-end professional services, innovation and technology zone, port trade and industrial zone, and blue-green recreational tourism ecosystem; ** ** To promote the diversification of youth development, land is reserved in the "Northern Metropolis" for the development of international schools. **

Interpretation of policy implications

These policies have the following impact and significance on the Web3 industry:

This has increased the supply and mobility of technology talent needed in the Web3 industry, reducing talent costs and barriers. The Web3 industry is a highly specialized and rapidly changing field that requires a large number of tech talents with different backgrounds and skills to support its development.

The Manpower Services Office, the High-end Talent Pass Scheme and the Vocational Graduate Retention Scheme in the Hong Kong Policy Address can introduce more outstanding overseas and mainland technology talents to the Web3 industry, as well as cultivate more local young technology talents, thereby increasing the talent pool and diversity of the industry. These policies can also provide more opportunities for talent mobility and exchange in the Web3 industry, so that technology talents from different regions and countries can learn and cooperate with each other in Hong Kong, thereby reducing the talent costs and barriers in the industry.

Secondly, Hong Kong has increased the funds and resources for technological innovation required by the Web3 industry, improving the efficiency and quality of innovation. The Web3 industry is a highly competitive and risky field that requires significant funding and resources to support its innovation and growth.

The Capital Investment Entrant Scheme in the Hong Kong Policy Address and the New Engine Scheme for the Development of the "Northern Metropolis" can provide more financial and resource support for the Web3 industry, as well as more incentives and incentives for innovation. These policies can help the Web3 industry attract more well-known overseas and mainland technology companies to set up or expand R&D facilities in Hong Kong, and support more local technology enterprises to innovate and develop at different stages. These policies can also improve the efficiency and quality of innovation in the Web3 industry, allowing the industry to launch more quality products and services more quickly and efficiently.

Not only that, Hong Kong has increased the training and development of scientific and technological talents required by the Web3 industry, and improved the quality and ability of talents. The Web3 industry is a highly complex and diverse field that requires constant updating and upgrading of the knowledge and skills of its tech talents.

Hong Kong promotes the diversified development of youth and reserves land in the "Northern Metropolis" for the development of international schools, which can help the Web3 industry cultivate and develop more scientific and technological talents with professional knowledge, practical experience, innovative thinking, international vision and other qualities and capabilities, so as to enhance the talent level and competitiveness of the industry.

Finally, Hong Kong has increased the opportunities and channels for technological cooperation required by the Web3 industry, expanding the market and network. Web3 is a highly open and shared field, which requires extensive scientific and technological cooperation and exchanges with other regions and countries.

In the Hong Kong Policy Address, it is proposed to deeply implement the strategy of strengthening the country with talents, accelerate the construction of the world's important talent centers and innovation highlands, and promote the rational layout and coordinated development of talent regions. These goals can provide more opportunities and channels for scientific and technological cooperation for the Web3 industry, so that the industry can carry out more cooperation and exchanges with technology enterprises, institutions, communities, etc. in other regions and countries, so as to expand the market and network of the industry, and enhance the influence and reputation of the industry.

Review of Hong Kong Web3 Policy

• In November 2018, the Securities and Futures Commission (SFC) issued a statement clarifying protections for virtual asset investors, including regulatory requirements for virtual asset fund managers and distributors.

• In March 2019, the SFC issued a guide detailing regulatory standards and practices for virtual asset fund managers and distributors.

• In November 2019, the SFC published a positioning paper proposing a conceptual framework for regulating central trading platforms operating in Hong Kong or providing trading services to the Hong Kong public.

• In May 2020, the Monetary Authority (HKMA) published a consultation paper seeking advice on the regulatory regime for stablecoins.

• In November 2020, the SFC issued a new guideline stipulating that only professional investors can participate in trading on virtual asset trading platforms and requiring platform operators to apply for a license.

• In May 2021, the Companies (Amendment) Bill 2021 was passed by the Legislative Council to bring virtual asset service providers under the scope of anti-money laundering and counter-terrorist financing regulation.

• In October 2022, the Government issued a Policy Declaration on the Development of Virtual Assets in Hong Kong, setting out the Government's policy positions and guidelines for the development of a vibrant virtual assets industry and ecosystem in Hong Kong. The policy statement covers the following areas:

• Vision and Policy: Hong Kong is an international financial centre with an open and inclusive attitude towards global innovators engaged in virtual asset business. The Government is working with financial regulators to create a conducive environment for the sustainable and responsible development of Hong Kong's virtual asset industry, and will set the necessary requirements in due course to mitigate actual and potential risks in line with international standards, so that virtual asset innovation can flourish in Hong Kong in a sustainable manner.
• Regulation: The Government is stepping up preparations for a new VA licensing regime and is willing to contact the global virtual asset industry to invite relevant exchanges to explore business opportunities in Hong Kong. The SFC will launch a public consultation on the appropriateness of the extent to which retail investors can trade virtual assets under the new licensing regime. The Government welcomes the possibility of introducing virtual asset exchange-traded funds (ETFs) in Hong Kong. The government is open to future reviews of the property rights of tokenized assets and the legality of smart contracts. The HKMA will later release the results of the consultation and next steps on the regulatory regime for stablecoins.
• Pilot Scheme: The Government and regulators are exploring the launch of the following pilot scheme to test the technical benefits of virtual assets and to try to further apply the technology to the financial markets. These pilot schemes include the issuance of non-fungible tokens (NFTs), green bond tokenization, and digital HKD for Hong Kong FinTech Week 2022.
• Outlook: The Government will implement the vision contained in this policy declaration through convenient policies, holistic and balanced regulation, risk-based constraints, and pilot schemes. The Government invites the global virtual asset industry to join hands with us to leverage Hong Kong's status as an international financial centre to unleash the potential of financial innovation in a clear, flexible and accessible regulatory environment, following best international standards and practices.

• In December 2022, CSOP Bitcoin Futures ETF (3066.HK) and CSOP Ether Futures ETF (3068.HK) will be listed on the Hong Kong Stock Exchange, becoming Asia's first Bitcoin and Ether futures ETF.
• In January 2023, the SFC and HKMA issued a joint circular requiring registrars and licensed corporations to only partner with SFC-licensed virtual asset trading platforms to provide virtual asset trading services to their clients.
• In June 2023, the SFC began accepting virtual asset service provider (VASP) license applications, stipulating that only professional investors can participate in the trading of virtual asset trading platforms and requiring platform operators to apply for a license.

• In August 2023, HashKey Exchange became the first virtual asset trading platform in Hong Kong to receive SFC license upgrade approval for SFC Type 1 and Type 7 licenses, which can expand its business to retail users. HashKey Exchange supports user authentication (KYC) for bank accounts in 16 countries and regions, with traditional bank-level reviews.
• In October 2023, SFC issued a circular on exchange-traded funds (ETFs) in virtual asset futures, indicating that it will begin accepting applications for accreditation of such funds. The SFC also said it would review the "professional investor only" rule on investing in virtual asset products and develop a circular setting out the revised security token regime.