jakiro
Author: Zhu Weisha, Zhang Feng
1. Pain points emerge: Hong Kong lags under the trend of global regulatory integration
Recently, the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) issued a joint statement, pointing out for the first time: “The current law does not prohibit the US-registered exchange from listing spot products for some crypto assets.”This statement is not only a sign of coordination and unity between US regulators, but also a global signal that traditional finance and crypto finance are moving towards regulatory integration.In contrast, although Hong Kong is an international financial center, its response to crypto asset supervision is still slow, and the framework construction has not yet kept up with the pace of innovation.If timely adjustments are not made, Hong Kong may be marginalized in the new round of financial competition.
2. Principle review: the cognitive misunderstanding of “same business, same risks, same rules”
When handling crypto assets, Hong Kong regulators often invoke the principle of “same business, same risks, same rules”.This principle has logical consistency on the surface, but it has exposed serious shortcomings in practice.Although cryptocurrency trading and traditional stock trading are both “trading” businesses, their risks are essentially due to structural differences rather than similarities in business types.Mechanical application of the same set of rules not only fails to control real risks, but may also curb innovation and distort the market.
1. The business is similar but the structure is very different, and the sources of risk are completely different
The stock market and crypto exchanges do have the same form in terms of the five basic elements of matching transactions, brokerage, settlement, banking services and user management, but their structure and operating mechanism are fundamentally different.The traditional stock market adopts a multi-level and multi-institutional check and balance model, while the typical centralized crypto exchange (CEX) presents a highly integrated feature, taking into account almost all functions.This structural difference directly leads to the two types of markets being completely different in terms of credit risk, operational risk, liquidity risk and moral risk.
2. Analysis of the checks and balances mechanism of Hong Kong stock market
In the Hong Kong stock system, user funds are deposited into the bank and then transferred to the securities company’s exclusive account in the bank. Securities companies cannot directly use customer assets, and capital flows must strictly follow the “original return” and reconciliation mechanism.Securities companies are responsible for placing orders, exchanges are only responsible for matching and not participating in proprietary operations, Central Settlement and Settlement (CCASS) independently performs liquidation, and banks have the final fund dispatching rights.As the highest regulatory body, the CSRC implements full-process compliance supervision.This closed-loop check and balance system effectively isolated risks and ensured market stability.
3. The integration risk of crypto exchanges
On the other hand, users usually only need to open a single account on the platform to complete all operations.The exchange also undertakes brokerage, settlement, custody and even market making functions, and lacks effective internal and external checks and balances.Specifically:
– KYC and anti-money laundering are the responsibility of the exchange (traditionally executed by banks);
– The exchange can see all orders placed on the exchange and can conduct proprietary trading or market manipulation (exclusively prohibited by the stock market);
– The client’s assets are confused with their operating assets, and the risk of misappropriation is significant;
– The currency listing mechanism lacks transparency and there is no third-party supervision such as sponsors or lawyers.
Although the industry has introduced a variety of risk control methods such as third-party custody and insurance, as long as the account book mechanism is still opaque and checks and balances have not been established, it is difficult to eradicate structural risks.
4. “Same Rules” does not equal “Equal Security”
The development stage of crypto assets is also different from traditional securities.Token financing often covers all stages of seed rounds, angel rounds to IPOs, and retail investors can participate very early.Currently, Hong Kong’s regulatory practice tends to treat tokens as stocks in the IPO stage for management. Although it has certain rationality, it ignores the investment attributes and risk characteristics of earlier tokens.
The rigid implementation of the “same rules” is like “regulating cars with carriages”. It is orderly on the surface, but in fact it restricts development and covers up real risks.Crypto asset supervision should be based on the essence of the business and risk structure, and implement differentiated and refined rules.
3. Explore the way out: a new regulatory framework with transparency as the core
Although there are significant differences between traditional finance and crypto finance, “transparency” can be used as a common basic principle to support the regulatory structure of the integrated era.Transparency is not only applicable to crypto systems, but should also be the basic requirement for all financial transaction activities.Using technological innovations – such as on-chain ledgers, AI audit tools, etc. – to improve the verifiability and openness of data is an effective path to achieving low-cost and high-efficiency supervision.
1. Transparency: Opening up the regulatory bottom layer of tradition and encryption
The transparency concept of Web3 is inspiring to traditional trading venues.If the exchange can promote the disclosure of the ledger, it will greatly reduce regulatory complexity and cost.If a centralized crypto exchange can achieve verifiable asset transparency on the chain, its trust bottleneck will be solved; although the experience of decentralized exchanges (DEXs) are still lacking, they are widely trusted because of their native transparency on the chain.This shows that the market sincerely recognizes the openness brought by technology.
It should be noted that transparency does not mean complete anonymity.DEX can make up for the shortcomings of anonymous transactions by introducing the KYC whitelisting mechanism and curb false transactions and robot manipulation.Similarly, traditional finance can also absorb the advantages of transparency in the chain and enhance the credibility of the existing system.For example, the Hong Kong Stock Exchange has achieved brokerage level transparency, and in the future, it may explore user account level transparency (supports anonymous display) to further enhance market integrity.
2. Build transparent synergy between supervision and community
The existing regulatory consulting mechanisms are mostly limited to traditional channels, and it is difficult to match the development speed and cultural characteristics of the crypto industry.We should promote the establishment of a three-party transparent interactive mechanism of “regulation-community-market” and use mature community platforms (such as Discord, Telegram, etc.) to carry out public reviews, policy hearings and compliance supervision.Community forces can serve as checks and balance mechanisms to effectively supplement official supervision, while improving policy responsiveness and accuracy.
3. AI Audit: Technical Support to Realize the Transparency of Ledgers
The operating books in the encryption field are naturally auditable, while traditional financial accounts still rely on post-report and sampling inspection.With the help of AI tools, real-time ledger monitoring can be automatically generated and untampered supervision records can be embedded in existing systems in the form of “plug-ins” without affecting normal operation.Although this type of tool originated in the crypto industry, it is also of high value for the transformation and transparent operation of traditional institutions.Of course, privacy protection mechanisms are also needed to properly design to prevent data abuse.
4. Build a forward-looking regulatory system that is in line with reality
1. Establish a unified regulatory coordination agency across departments
Crypto assets have multiple attributes such as securities, commodities, and currency. Fragmented supervision can easily lead to overlap or vacuum.Hong Kong should establish a high-level cross-departmental coordination agency, or clearly take the lead in charge, coordinate policy formulation and law enforcement actions, and avoid the outflow of talents and projects due to regulatory hesitation.
Further, the nature of crypto finance is global and advanced. Hong Kong should actively participate in or even lead cross-border regulatory dialogue and cooperation, and strive for the right to speak in the formulation of international rules.
2. Establish a decision-making mechanism with “professional leadership and coordination between officials and citizens”
Regulators must truly understand the industry.It is recommended to establish an advisory committee composed of senior practitioners, technical experts and scholars, and members must meet at least one of the following conditions:
– He once led a world-renowned crypto projects;
– Make outstanding contributions to industry theory or standards;
– Promoting major milestones in the industry;
– Continue to participate in crypto practices and hold crypto assets of no less than US$5 million.
The committee should enjoy substantial voice in policy formulation and recommend that the voting ratio of official representatives shall not exceed 50%, so as to ensure that the policy is both professional and practical.
3. Implement the concept of “market first and moderate supervision”
Hong Kong has always been known for its flexible market and loose system.In the face of encryption innovation, supervision should remain humble, allow “try first” and focus on systemic risk monitoring and investigation and punishment of major violations, rather than pre-approval without any minority.Exchanges should be allowed to independently formulate rules for listing currency, and at the same time, they should learn from the sponsors, analysts, securities companies and other systems in traditional finance to achieve market-oriented checks and balances.
5. Policy recommendations: Three major strategies to promote Hong Kong to become a crypto-financial center
To seize historical opportunities, Hong Kong should focus on three major directions: stablecoin, exchange and asset innovation and introduce systematic policies:
1. Launch USHK, a US dollar stablecoin endorsed by the HKMA
Currently, mainstream stablecoins such as USDT have problems such as opaque reserves, high handling fees and redemption thresholds.Hong Kong can rely on the linked exchange rate system to issue USHK by the HKMA: commercial banks deposit USD, and the HKMA issues stablecoins 1:1, with no threshold, zero fees, and government credit endorsement.If mainland residents can be allowed to exchange USHK within a foreign exchange quota of US$50,000, it is expected to become the preferred tool for cross-border settlement and shape the new status of the “Hong Kong dollar”.
2. Create a top crypto exchange cluster
The core application of the crypto ecosystem is exchanges and stablecoins, which complement each other.Hong Kong should take the initiative to attract the top ten exchanges in the world to set up regional headquarters or operation centers in Hong Kong, clarify policy expectations, set up transition periods, and not pursue the past before compliance, so as to create an open, safe and stable regulatory environment.
3. Discover real-world assets (RWA) and new asset classes
In addition to the tokenization of traditional equity and debt, we should pay more attention to the incremental market.Among them, the antique market has huge potential, with a total valuation of millions of billions of yuan, but it cannot be scaled due to the difficulty of distinguishing authenticity, distortion of prices, and difficulty in circulation.Hong Kong can rely on its advantages in the rule of law and certification to support the establishment of authoritative antique identification and insurance institutions, promote the tokenization of antique assets, break through the limitations of traditional auctions through on-chain pricing and trading mechanisms, and make it leap from a niche market to the mainstream.
4. Implement the crypto talent introduction plan
Introduce targeted visa and residence policies:
– Donate 3 million Hong Kong dollars equivalent to Bitcoin/Ethereum (holding the currency for more than 1 year) and meet the residence requirements, and you can obtain a passport;
– Crypto enterprises can obtain a work visa by pledging 1 bitcoin and other means, and obtain status after completing 7 years of tax residence.
Such policies not only attract talents, but also accumulate strategic crypto asset reserves.
Hong Kong urgently needs to get rid of the “horse-car control” regulatory thinking, and, on the premise of adhering to the rule of law and controllable risks, face up to the particularity of the crypto industry, based on the principle of transparency, professional communities as the support, and institutional innovation as the engine, re-examine and adjust the applicable boundaries of “same business, same risks, same rules” in order to seize the high ground in the new global crypto finance pattern.
