Evolution of Hong Kong's Virtual Asset Regulatory Framework: From Risk Warnings to Proactive Promotion

In recent years, the virtual asset market has developed rapidly, posing challenges to the traditional financial system and regulatory framework. Virtual assets are characterized by high price volatility and high trading leverage, presenting many new issues for regulatory authorities and trading platforms, such as cross-border capital flow regulation, customer identity verification, and systemic risk prevention. These issues indicate that the regulation of virtual assets requires multi-party collaboration to address.

As the third largest financial center in the world, Hong Kong plays a key role in the regulation of virtual assets. On one hand, Hong Kong needs to promote the development of the global virtual asset market; on the other hand, it must also meet financial stability requirements. The evolution of Hong Kong's virtual asset regulatory policies reflects a balance between globalization and localization, innovation and prudence.

2017-2021: Preliminary Regulation Phase

Currently, Hong Kong is mainly transitioning from a wait-and-see approach to regulation through risk warnings and pilot supervision.

• In September 2017, the China Securities Regulatory Commission issued a statement regarding ICOs, laying the foundation for the classification of virtual assets.
• In December 2017, financial institutions were required to comply with existing regulations when offering cryptocurrency products.
• In November 2018, it was proposed to include trading platforms in a regulatory sandbox.
• In March 2019, preliminary regulations were established for STOs and intermediary liability.
• In November 2019, proposed a licensing system for trading platforms.
• In 2020-2021, there are plans to include virtual asset service providers in the licensing system.

The regulatory attitude at this stage is relatively conservative, based on the principle of "voluntary participation," incorporating virtual assets into the existing system through classification methods. At the same time, a "regulatory sandbox" is introduced to provide experimental space for innovative projects.

2022: A Key Turning Point for Policy Transformation

In October 2022, the Treasury Department released its first virtual asset policy declaration, marking a shift in regulatory approach from "risk-oriented" to "opportunity-oriented," establishing a direction for subsequent reforms. This change stems from:

1. With increasing international competition, Hong Kong needs to maintain its status as a financial center.
2. The development of virtual assets has created multiple demands, and Hong Kong can play a key connecting role.

This is not only a response to the innovation of finance, but also a strategic choice for Hong Kong to maintain its position as a financial center.

Since 2023: Rapid Iteration and Deepening of Regulatory Policies

Since 2023, the regulation of virtual assets in Hong Kong has entered the implementation stage:

• The VASP licensing system was implemented in June 2023, with the first two platforms approved.
• The first platform opened trading to retail investors in August 2023.
• Clarification of regulatory requirements for tokenized securities in November 2023
• Virtual Asset ETFs will be allowed for sale in December 2023
• Launch of tokenized asset and stablecoin regulatory sandbox in 2024
• Announced the release of the second virtual asset policy declaration in February 2025
• The number of licensed exchanges will increase to 10 by March 2025, releasing the "A-S-P-I-Re" regulatory roadmap.

Hong Kong adopts a "stamping regulatory" approach based on existing laws, treating virtual assets as an extension of traditional financial assets. This method is efficient and adaptable, facilitating the integration of institutional transformation and industrial development.