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Hong Kong regulators on crypto: same risk, same regs

Hong Kong’s banking and securities regulators weigh in on stablecoins – and the city’s future prospects.



Edmond Lau, HKMA; Christina Choi, HK SFC; Nicolas Aguzin, HKEX

Senior regulators in Hong Kong say they are honing a common approach to stablecoins and other aspects of the crypto industry. Speaking at a conference last week, they shared the same terminology in a bid to shore up confidence in the territory – for virtual assets, but more fundamentally as a global financial center.

“We are thinking to adopt a same-risk, same-regulation approach,” said Edmond Lau, deputy CEO at Hong Kong Monetary Authority (pictured left), noting crypto assets are now nearly 2 percent of global financial assets, despite this year’s crash. “We don’t want to underestimate that, because its connectivity to mainstream finance could pose a challenge.”

His peer at the Hong Kong Securities and Futures Commission made similar remarks. Christina Choi, executive director for investment products (pictured center), repeated the “same-risk, same-regulation” language, while noting the SFC has already spelled out clear licensing rules for exchanges and fund managers dealing in virtual assets for professional investors.

“We are engaging with the relevant managers and custodians to understand how they address issues around custody, trading, and risk management,” she said.

Crypto to COVID

The two spoke on Friday at the annual event of the Hong Kong Investment Funds Association. Their job, along with that of Hong Kong Exchanges CEO Nicolas Aguzin (pictured right), seemed to be to bolster confidence.

Their words seem to recognize questions about both Hong Kong’s isolation under strict “zero COVID” policies as well as question marks about the once-thriving crypto sector as mainland China has moved to ban most activity.

Aguzin made the medium- to long-term case for the city’s relevance as a global financial hub catering to Chinese capital and increased access to servicing mainland investors via a gradual integration program with Guangdong Province and Macau known as the Greater Bay Area, or GBA.

“The retail market [in Hong Kong] is small, we’re only 7 to 8 million people,” Aguzin said, “but with the GBA it’s 86 million and a $2 trillion GDP. That’s an opportunity that’s just beginning.”

The $100 trillion market?

For institutional capital markets, he says China’s growth and liberalization will add up to big business for financial firms in Hong Kong. Aguzin’s back-of-the-napkin reasoning goes as such: Chinese GDP, today around $18 trillion, will double over the next 10 years if the economy grows at 4 percent to 5 percent per annum. Household wealth remains locked in real estate and bank deposits, so more will shift to stocks and bonds, with Chinese capital markets able to grow from around $30 trillion today to $100 trillion in ten years.

“Humanity has never seen that capital-market value creation in securities,” Aguzin said. Add to that many large, private companies looking to go public, plus cross-border flows from mainland China to Hong Kong doubling. “You have a multiplier effect that is an incredible opportunity for someone at that gateway,” he said.

That sunny outlook contrasts with questions such as whether China’s GDP is going to grow that quickly and whether it can transition its economy to a more balanced, pro-consumer footing; whether it will indeed liberalize further; whether it will retain its innovative edge; and how it will manage increasing tensions with the U.S.

Aguzin cited HKEX’s IPO pipeline now has 180 companies in the queue, although no one knows how many of those deals will get done in the current environment.

It is these questions that will determine Hong Kong’s prospects, while in the short term the city’s international viability is under pressure from its COVID policies, which global businesses find increasingly untenable.

Hong Kong’s future

HKMA’s Lau argued that Hong Kong’s place in the world hasn’t changed. “We help the mainland liberalize its onshore market, and serve as a springboard for mainland investors going out,” he said, noting that Hong Kong benefits from being within the People’s Republic of China while also being part of the global financial system.

“As long as mainland liberalization continues, our role will only deepen,” he said, noting foreign demand for mainland securities including government bonds.

For the regulators, staking out a sustainable position on crypto is one of several priorities. Another is to support sustainability and green bonds.

A third is to promote the recently launched Wealth Management Connect, a scheme in to support cross-border funds distribution – including a desire to see this expand beyond mere sales and allow wealth managers to provide advice. A similar scheme for ETFs is in the works.

Like other projects with mainland authorities, however, the terms and the timing are mostly in Beijing’s hands. The same can be said of Hong Kong’s future as a top-tier global financial center.

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