<p>Christopher Hui, Hong Kong’s Secretary for Financial Services and the Treasury, shared a roadmap for upcoming regulations within the tokenization sector during his address at the Hong Kong Fintech Week 2023.</p><h2 id="header-0">JPEX no hindrance to Web3 growth</h2><p>Hui’s <a href="https://www.info.gov.hk/gia/general/202311/02/P2023110200339.htm" rel="noopener noreferrer nofollow">announcement</a> at the event on Thursday comes on the heels of the<a href="https://medium.com/&#64;coinness.gl/crypto-influencer-arrested-in-hong-kong-over-jpex-association-b089cc8026aa" rel="noopener noreferrer nofollow"> JPEX scandal</a>, a Dubai-based crypto exchange that collapsed amid allegations of having defrauded Hong Kong-based platform users. Hui emphatically stated that the JPEX incident would not deter Hong Kong’s commitment to expanding the Web3 market. Hui stated:</p><p>“We’ve been asked many times whether JPEX will affect our determination to grow the Web3 market — the answer is a clear ‘no.’”</p><p>In June, Hong Kong implemented new regulations for cryptocurrency exchanges, opening up locally regulated crypto trading services to retail customers via virtual asset service providers (VASPs). However, the majority of the forthcoming regulatory efforts will extend beyond the crypto sector, focusing on areas such as token issuance, wallets and other related components.</p><h2 id="header-1">Regulatory impact on TradFi and DeFi</h2><p>Hui indicated the intention to expand virtual asset regulations, suggesting a potential impact on decentralized finance (DeFi). The planned regulations within the tokenization domain are poised to influence not only the crypto industry but also traditional finance (TradFi).</p><p>These regulations include the issuance of a circular concerning intermediaries engaging in tokenized securities. Additionally, they entail a circular regarding the tokenization of Securities and Futures Commission (SFC)-authorized investment products. Lastly, they’re inclusive of consultations with banks on digital asset custody services with the involvement of the banking regulator. Furthermore, a joint consultation on stablecoin regulations will be issued by the Treasury and the Hong Kong Monetary Authority (HKMA).</p><h2 id="header-2">Focus on positive impact of tokenization</h2><p>Eddie Yue, CEO of the HKMA, echoed Hui’s sentiments by discussing the positive impact of tokenization. He anticipates that tokenization will fuel the adoption of blockchain payments, particularly involving stablecoins and tokenized deposits. Yue believes that central bank digital currencies (CBDCs) will serve as the foundation and a crucial element for achieving interoperability within this ecosystem.</p><p>He emphasized the need to tackle crucial questions, such as the legal definitions of tokenized securities and whether Delivery versus Payment (DvP) can be successfully implemented for tokenized securities. Additionally, Yue pointed out the intricate legal considerations and interoperability challenges that are currently being discussed within the central bank community.</p><h2 id="header-3">First tokenized green bond issuance</h2><p>Yue also highlighted Hong Kong’s first-of-its-kind issuance of tokenized green bonds in February and revealed that discussions with the industry are already underway for the next bond.</p><p>“We, ourselves, assisted the government to issue the world’s first-ever tokenized government green bond earlier this year in order to demonstrate the compatibility of Hong Kong’s legal and regulatory environment with this very new issuance format,” he stated. However, despite the promising outlook, Yue remained grounded on the subject, acknowledging the significant challenges in the tokenization landscape.</p><p>In a related development, HSBC <a href="https://medium.com/&#64;coinness.gl/hsbc-and-ant-group-advance-blockchain-based-tokenized-deposit-system-22988f976ee7" rel="noopener noreferrer nofollow">recently disclosed</a> that it is conducting experiments with tokenized deposits in collaboration with Ant Group as part of the HKMA sandbox.</p>

Hong Kong unveils comprehensive tokenization regulations

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