Hong Kong Declaration Overview: Aspiring to Replace Singapore as the Crypto Assets Hub of Asia-Pacific?

The release of the Hong Kong declaration comes as Singapore issues strict policies to drive out unlicensed institutions.

Written by: Wu Says Blockchain

On June 26, the Government of the Hong Kong Special Administrative Region released the "Hong Kong Digital Asset Development Policy Declaration 2.0", stating its commitment to building Hong Kong into a global leading digital asset center, a market where innovation can thrive in a controllable risk environment, bringing substantial benefits to the real economy and financial markets, and being a trustworthy market.

The release of the Hong Kong declaration coincides with Singapore's implementation of strict policies to drive away unlicensed institutions. Legend Trading CEO Hao stated that in the next 2-3 years, Singapore's influence on the Web3 industry will diminish. There are only 33 licensed companies in total, and about half of these companies have very little competitiveness in markets outside of Singapore. Some are just subsidiaries of large groups in Singapore, and their licenses only allow them to serve the Singapore market, and only for spot trading. Many founders of these companies will remain in Singapore for family reasons, but the teams will try to be placed in other countries. Well-known analyst Zheng Di stated that the next Web3 hub will be Hong Kong, and he is very optimistic about Hong Kong. Due to Temasek's significant losses from investing in FTX, many people coming from Singapore do not need the crypto space at all. Hong Kong will regain its position as the global center of Web3 because of Singapore's actions.

The Hong Kong Declaration states that in order to achieve this vision and goals, a digital asset ecosystem that deeply integrates with the real economy and financial markets, and is future-oriented, will be created by proposing a series of strategic policy directions and implementing corresponding measures. When formulating policy directions and measures, we strive to ensure that they are not constrained by current technologies and that they can adapt to the future development of digital assets, while integrating with the real economy and financial system to achieve sustainable growth. These measures are framed by "LEAP" and include: optimizing legal and regulatory streamlining; expanding the suite of tokenised products; advancing use cases and cross-sectoral collaboration; and people and partnership development, in order to build a trustworthy, innovative, and vibrant digital asset ecosystem that strengthens Hong Kong's leading position in the global financial landscape.

The declaration states that 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, to meet investors' needs for high liquidity, large transactions, and secure custody of assets. The government suggests designating the Securities and Futures Commission (SFC) as the primary regulatory body for digital asset trading service providers, responsible for licensing and registration matters, setting standards, optimizing regulatory processes, and reducing potential regulatory arbitrage under different digital asset regulatory frameworks. Meanwhile, the Hong Kong Monetary Authority (HKMA) will act as the frontline regulatory body for banks, overseeing their digital asset trading activities. The SFC will serve as the primary regulatory body for digital asset custody service providers, responsible for licensing and registration, as well as setting standards, while the HKMA will act as the frontline regulatory body for banks, supervising their digital asset custody activities.

The declaration states: The Financial Services and the Treasury Bureau and the Hong Kong Monetary Authority will lead a review of the relevant laws and regulatory framework, referencing international experience and practices to promote further application of tokenization in Hong Kong. The initial review will focus on the bond market, which has already passed the proof of concept stage, and it is expected to provide references for the tokenization of other real-world assets and financial instruments. We will comprehensively examine the issuance and trading processes of tokenized bonds, including but not limited to settlement, registration, and record-keeping requirements. The government will normalize the issuance of tokenized government bonds and will explore different currency and term arrangements, as well as other innovative options. The government hopes that this move will provide the market with stable and high-quality digital bonds, further expand accessibility, and attract a broader investor base. To further leverage the advantages of tokenization, the Financial Services and the Treasury Bureau and the Hong Kong Monetary Authority will continue to communicate with industry experts to understand various aspects of the market, including the incorporation of digital currencies to enhance trading efficiency, secondary market trading application scenarios, and further expanding investor participation in the local bond market. The government aims to set a global benchmark by taking the lead in issuing tokenized bonds and normalizing them, enhancing market confidence in the technology while encouraging adoption by the public and private sectors.

The declaration states: All exchange-traded funds (ETFs) currently listed on the Hong Kong Stock Exchange are exempt from stamp duty when transferred. To promote the development of the tokenized market, the government will clarify that such stamp duty exemptions also apply to tokenized ETFs. Based on this exemption, the government welcomes market participants to explore the advantages of tokenizing ETFs, such as money market ETFs, including introducing them for secondary market trading on licensed digital asset trading platforms or other platforms. Looking ahead, the government will maintain an open attitude, considering factors such as fiscal impact and market development, to review the tax arrangements for the transfer of other Securities and Futures Commission recognized funds after tokenization. The government will submit legislative proposals to include specified digital assets in funds offered privately and family investment control tools that qualify for profits tax exemption. If the proposal is passed by the Legislative Council, the tax exemption will take effect from the 2025/2026 tax year.

The declaration states that it will support stablecoins and other tokenized projects, including exploring the use of stablecoins as a payment tool. To fully realize the potential of stablecoins, the government and regulatory bodies will provide a favorable market environment and necessary regulatory guidance, promoting licensed stablecoin issuers in Hong Kong to research and implement solutions for various application scenarios to address substantive pain points in economic activities. To demonstrate the government's support and take a leading role, we welcome market participants to propose suggestions on how the government can experiment with and use licensed stablecoins, such as to enhance the efficiency of government payments.

The declaration states that Cyberport will also launch a pilot funding program for blockchain and digital assets, providing funding for application projects with future application potential, iconic status, and market influence. In addition to funding, Cyberport will also assist these companies and coordinate with relevant stakeholders to support the implementation of pilot projects as needed. The dedicated team of the InvestHK welcomes and is ready to support digital asset service providers in establishing and expanding their businesses in Hong Kong. Among the various supports available, InvestHK can connect potential digital asset service providers with banks and different professional and support services, and facilitate their business establishment.

National Committee member of the Chinese People's Political Consultative Conference and Hong Kong Legislative Council member Wu Jiezhuang interpreted that the declaration clearly replaces the term "virtual assets" with "digital assets", aligning with international standards and emphasizing its innovative leadership as an international financial center in the digital age; the goal is very clear, which is to balance innovation and risk control to attract high-quality institutions globally; and to improve the efficiency of the financial market through technologies such as tokenization to serve the real economy; the division of responsibilities has been clarified, with the Securities and Futures Commission leading the issuance of licenses for digital asset trading and custody services, and the Monetary Authority regulating bank-related activities to avoid functional overlaps; this demonstrates the government's friendliness and recognition of digital assets, and the government will submit legislative proposals to include digital assets in private fund offerings and family investment control tools to enjoy profit tax exemptions for qualified transactions. At the same time, the HKSAR government will take action to regularize the issuance of tokenized government bonds; practically reduce industry operating costs, and strive to enhance market liquidity. The government will clarify how the stamp duty exemption measures for ETF transfers will also apply to tokenized ETFs, which has far-reaching implications for the digital asset industry; substantial cash support will improve the market ecosystem, and Cyberport will launch a blockchain and digital asset pilot subsidy program, which will not only attract more talent to join the industry but also enhance the overall project pool in Hong Kong; in summary, Hong Kong has a great opportunity to become a benchmark for compliant innovation in digital assets in Asia within the next 3-5 years, providing a Hong Kong solution for the integration of traditional finance and the digital economy.

The Financial Secretary of Hong Kong, Paul Chan, stated: Digital assets are an important and highly potential component of financial technology. Through blockchain technology, they enable more efficient and lower-cost financial transactions, making financial services more inclusive. The "Policy Declaration 2.0" showcases our vision for the development of digital assets and demonstrates the substantive application of tokenization through practice, promoting the diversification of application scenarios. By combining prudent regulation with encouragement for market innovation, we aim to build a more vibrant digital asset ecosystem that integrates with the real economy and social life, bringing benefits to the economy and society, while consolidating Hong Kong's leading position as an international financial center.

The Secretary for Financial Services and the Treasury, Christopher Hui, stated that Hong Kong's unique advantages give us a head start in advancing traditional finance into the era of digital assets. The framework established by the "Policy Declaration 2.0" helps us move towards "LEAP" to form a trustworthy, sustainable, and deeply integrated digital asset ecosystem within the real economy. The "Policy Declaration 2.0" also positions Hong Kong at the forefront of digital transformation, providing businesses and investors with a clear roadmap to navigate the robust and developing digital asset market.

The Financial Secretary of Hong Kong, Paul Chan, stated in an exclusive interview with the Hong Kong Economic Journal that Hong Kong is further building a full-chain ecosystem for the development of digital assets through four major strategies: optimizing laws and regulations, expanding product varieties, advancing application scenario cooperation, and talent cultivation and development. He emphasized that digital assets are not only a breakthrough for financial technology but also a key lever for Hong Kong to consolidate its position as an international financial center. Hong Kong will promote the integration of virtual assets with the real economy through a dual track of licensing management and scenario-based applications. "Regulation of stablecoins is a key focus; we require their use to be tied to real scenarios such as trade settlement and cross-border payments to eliminate speculation and market manipulation." Currently, Hong Kong has legislated to regulate the issuance of stablecoins, and on the other hand, the Securities and Futures Commission has begun licensing virtual asset exchanges and advancing custodial regulation. At the same time, through "sandbox regulation," it provides the industry with innovative testing space.

Xiao Feng, Chairman of HashKey Group, stated to PANEWS that this declaration has three key changes, including: Regulation of stablecoins: It is clearly stated that a stablecoin licensing system will be officially implemented on August 1, 2025, making it one of the few jurisdictions globally to truly provide a "landing permit" for stablecoins; RWA tokenization is regarded as a key industry: The government not only promotes the regular issuance of bonds but also plans to include assets like gold, green energy, and electric vehicles in the scope of tokenization; Tax exemptions for tokenized ETFs and digital asset funds: If future legislation is passed, tokenized ETFs will enjoy the same stamp duty exemption and capital gains tax exemption as traditional ETFs, marking a rewrite of the rules of the financial market. These reforms signal that Hong Kong is not only supporting Web3 but aims to make Web3 a part of the financial infrastructure through institutional means. The update of Hong Kong's Web3 policies has also completed the "trinity" of institutional closure: Regulatory certainty: Hong Kong will become the first jurisdiction in the world to clearly issue independent licenses for digital asset custody services; Asset penetration: Allowing real-world assets (metals, energy) to be tokenized on par with financial instruments (bonds, ETFs), breaking the boundary between virtual and real; Tax competitiveness: Tokenized ETFs are tax-free + capital gains tax exemption for digital asset funds.