The Evolution and Analysis of Hong Kong's Virtual Asset Regulatory Policy Framework

In recent years, virtual assets have rapidly developed globally, presenting unprecedented challenges to traditional financial systems and regulatory frameworks. The high volatility and high leverage characteristics of virtual assets have posed numerous difficulties for regulatory authorities and trading platforms, such as cross-border capital flow regulation, customer identity verification, and systemic financial risk prevention. These issues highlight the complexity of regulating virtual assets, requiring cross-departmental and cross-national collaboration to address.

As the world's third-largest financial center, Hong Kong plays a key role in the regulation of virtual assets. Hong Kong must promote the development of the global virtual asset market while meeting the central government's requirements for financial stability, and it also serves as a testing ground for China to explore emerging financial markets. Therefore, the regulatory policies regarding virtual assets in Hong Kong are bound to be a process of continuously seeking a balance between globalization and localization, innovation and stability.

2017-2021: Regulatory Initial Phase

At this stage, Hong Kong mainly adopts a strategy that combines risk warnings and pilot regulation, with the regulatory attitude gradually transitioning from a prudent wait-and-see approach to an orderly and standardized one.

In September 2017, the Hong Kong Securities and Futures Commission (SFC) issued a statement indicating that certain ICOs may constitute securities and are subject to regulation. In December of the same year, the SFC required financial institutions to comply with existing financial regulations when providing cryptocurrency-related products.

In November 2018, the SFC proposed to include eligible virtual asset trading platforms in a regulatory sandbox and established a regulatory framework that includes professional investor regulations, a ban on leverage and derivatives, and restrictions on ICO trading.

In 2019, the SFC further clarified the definition of STO and the responsibilities of intermediaries, and proposed a licensing system for virtual asset trading platforms.

From 2020 to 2021, Hong Kong began preparing to include virtual asset service providers (VASP) in the licensing system, requiring relevant businesses to apply for licenses and comply with anti-money laundering regulations.

During this period, Hong Kong gradually shifted from simply indicating risks to specific regulations on market behavior, beginning to define the responsibilities of market participants. Regulatory authorities recognized that virtual assets would become an important part of the financial market, and their attitude gradually changed towards positive management. However, for ecological participants, the principle of "voluntary participation" still applies, and platforms must actively apply for licenses and self-certify compliance with standards.

It is worth noting that the "regulatory sandbox" mechanism has been introduced for the regulation of virtual asset trading platforms at this stage. This mechanism allows emerging fintech projects to conduct limited testing in a controlled environment without fully meeting existing regulatory requirements. The sandbox mechanism provides a relatively free development space for innovative projects, reflecting the attitude of regulators and the market to explore together.

2022: A Key Turning Point for Policy Transformation

2022 marked a watershed year for Hong Kong's regulatory policies on virtual assets. On October 31, the Financial Services and the Treasury Bureau released the "Policy Declaration on the Development of Virtual Assets in Hong Kong," which explicitly stated that it would "actively promote" the development of the virtual asset ecosystem for the first time. This declaration not only confirmed the implementation of the VASP licensing system but also proposed support for emerging application scenarios such as tokenization, green bonds, and NFTs, signaling a shift in regulatory thinking from "risk-oriented" to "opportunity-oriented."

There are two main driving forces behind this transformation:

1. International competition is intensifying, and Hong Kong needs to maintain its status as a financial center. Major global financial centers are ramping up their virtual asset strategies, and Hong Kong needs to adjust its policies to compete for industry resources.

2. Gathering of multiple demands. Hong Kong needs a breakthrough in the new financial industry, while mainland China requires a "testing field" for compliant exploration of the digital economy. Practitioners hope to find a legal and compliant foothold, and trading platforms yearn for institutional protection and legitimacy.

This policy shift is not only a response to the innovative financial market but also a proactive strategic choice by Hong Kong to maintain its status as a financial center in a complex international environment.

From 2023 to Present: Rapid Iteration and Deepening of Regulatory Policies

Since 2023, the regulation of virtual assets in Hong Kong has officially entered the "practical implementation" stage. The previous experimental model has gradually been replaced by a complete and mandatory legal and licensing system, with regulatory policies shifting from "declaration" to "enforcement".

In February 2023, the Hong Kong SAR government issued its first tokenized green bond.

In June 2023, the SFC officially implemented the "Guidelines for Virtual Asset Trading Platforms" and launched the VASP licensing system. In the same month, the "Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance" came into effect, requiring virtual asset trading platforms to operate with a license.

In August 2023, HashKey became the first licensed exchange in Hong Kong to open to retail investors, allowing retail investors to participate in virtual asset trading in compliance.

In November 2023, the SFC issued a circular emphasizing that tokenized securities must comply with existing securities regulations.

In December 2023, the Monetary Authority and the SFC jointly released an updated circular, clarifying that virtual asset spot and futures ETFs are available for compliant sale. In the same month, the SFC issued a circular outlining the relevant regulations for recognized funds investing in virtual assets.

In January 2024, GF Securities (Hong Kong) successfully issued its first tokenized securities governed by Hong Kong law.

In March 2024, the Monetary Authority launched the "Ensemble Project" to explore the integration of tokenized assets and wholesale central bank digital currencies.

In July 2024, the Monetary Authority launched a regulatory sandbox program for stablecoins, allowing institutions to test stablecoin issuance and application models.

In August and September 2024, several real-world asset tokenization (RWA) projects were successively implemented.

In February 2025, the Financial Secretary announced the release of the second "Virtual Asset Policy Declaration", planning to integrate traditional finance with blockchain technology. In the same month, the first tokenized fund aimed at retail investors was approved.

In March 2025, the number of licensed exchanges increased to 10, and the SFC released the "A-S-P-I-Re" regulatory roadmap to deepen market development. In the same month, the world's first battery swapping physical asset RWA project was launched.

Characteristics of Hong Kong's Regulatory System

Hong Kong's regulation of virtual assets adopts a "stamped regulatory" strategy based on the existing legal framework, implementing a "patchwork" regulation of digital assets through the issuance of guidelines or circulars, rather than formulating a dedicated code. This reflects the Hong Kong government's regulatory concept of viewing virtual assets as an extension of traditional financial assets.

Hong Kong's regulatory focus is on three main aspects: financial compliance, anti-money laundering, and investor protection, incorporating virtual assets into the existing financial regulatory framework. This approach not only reduces the costs of regulatory coordination but also bridges financial institutions and emerging technology companies, facilitating the integration of institutional transformation and industrial development.

Overall, Hong Kong's virtual asset regulatory policy demonstrates pragmatic, flexible, and forward-looking characteristics, ensuring financial stability while also leaving room for innovation to develop.