jakiro
Author: Zhang Feng
On December 3, 2025, Hong Kong Securities and Futures Commission Chief Executive Officer Leung Fengyi delivered a keynote speech at the 4th ASEAN, China, Japan and South Korea Economic Cooperation and Financial Stability Forum. With the core of “Reconstructing Finance – Supervision to Seek Progress amidst Risks under the Changing Times”, she systematically elaborated on the deep changes currently faced by the financial market, the accompanying risks, and the response strategies that regulatory agencies and market participants should adopt.
In the context of the digital wave sweeping the world, the reorganization of the geographical landscape, and technology empowering finance, her speech not only set the tone for the direction of financial supervision in Hong Kong and Asia, but also provided a clear roadmap for the standardized development of emerging fields such as digital assets.
We might as well sort out the connotation of “change” pointed out by Liang Fengyi, summarize the hidden risks, summarize the path for change proposed by him, and then deduce the development trend of the digital asset industry, and explore how the industry can achieve innovation and progress amid risks.
1. Changing times: four major forces reshaping the financial ecosystem
Liang Fengyi clearly pointed out in her speech that the financial market is in the midst of an “unprecedented baptism”. This change is mainly driven by four intertwined forces:
First, the rapid growth of the private equity market.Since the global financial crisis, the implementation of Basel III has strengthened bank capital and liquidity supervision and restricted the credit supply of the traditional banking system.Private credit thus fills the financing gap and becomes an important channel to support innovation and growth of the real economy.The scale of global private equity assets under management has nearly tripled in ten years, reaching US$14 trillion, and risks have also spread from the banking system to non-bank financial institutions and asset holders.
Second, the comprehensive penetration of technology into financial services.Technologies such as artificial intelligence, machine learning, generative AI, and quantum computing are profoundly changing the operating model of financial business.They improve efficiency, reduce costs, and promote innovation, but they also bring new risks such as model bias, “hallucination” output, data security, and network security.
Third, the rise of distributed ledger technology (DLT) and digital assets.Blockchain technology makes instant clearing and settlement possible, promoting the transition from T+2 to T+1 and even real-time settlement.Digital assets, especially cryptocurrencies and tokenized products that are popular among younger generations, are changing investment behavior and market structure.
Fourth, the reconstruction of the relationship between the geo-economic pattern and financial markets.The global supply chain is moving from integration to regionalization, with intra-Asia-Pacific trade accounting for nearly 60%.ASEAN has become an emerging economic vitality area, attracting a large inflow of foreign investment.Financial market bridges are being rapidly reconstructed. As an international financial hub, Hong Kong is actively reconnecting with regional treasury centers, supply chain finance and capital markets.
These four forces work together to make the financial system more complex, interconnected, and uncertain than ever before. Traditional boundaries (such as public offerings and private placements, legal currencies and stable currencies) are increasingly blurred, and both supervision and the market are facing the challenge of “seeking progress amid risks.”
2. Hidden risks: Complexity and new threats coexist
Amid the changes, Liang Fengyi keenly pointed out multiple risks, which come from both the evolution of traditional fields and the challenges of emerging technologies:
in private markets, asset quality has become polarized, with some private placement credit structures having complex structures, low liquidity, lack of transparency, difficult valuations and prone to fraud.Cases such as First Brands and Tricolor in the United States have sounded the alarm.At the same time, retail investor participation has increased, further spreading risks to the public.Private equity is increasingly closely related to banks, insurance and other institutions, creating a potential contagion path for systemic risks.
In terms of technology applications, although artificial intelligence improves efficiency, the “black box” nature of its model makes the results difficult to review, verify and interpret, which may lead to erroneous trading signals, inappropriate investment advice and pricing distortion.The “illusion” risk of generative AI, the operational resilience risks caused by supplier concentration, and the potential cracking of existing encryption systems by quantum computing all pose threats to financial stability.
In the field of digital assets and DLT, young investors pursue high-yield, fast-paced, and social investments and tend to ignore risks.Stablecoins, if unregulated, could trigger a liquidity crisis in the event of large-scale redemptions.The digital asset market itself is highly volatile, with frequent fraud, manipulation, and cybersecurity incidents, and investor protection needs to be strengthened urgently.
In the context of geopolitical reconstruction, global liquidity fragmentation, differences in regulatory standards, and uncertainties caused by supply chain restructuring all pose challenges to capital market integration and financial stability.
3. Regulatory changes: a path to balance innovation and stability
In the face of changes and risks, Liang Fengyi proposed a series of ways to achieve change through coordination between supervision and the market. The core lies in “accommodating change, being far-sighted, and deepening cooperation”:
Strengthen the adaptability and forward-looking nature of the regulatory framework.The Securities and Futures Commission of Hong Kong is comprehensively reviewing the regulatory system and striving to strike a balance between “innovation and advancement and maintaining profitability and maintaining stability”.For the private equity market, data reporting requirements for over-the-counter derivatives have been strengthened and disclosure standardization has been promoted to enhance transparency and manage counterparty risks.
Build a technology risk management system.Licensed institutions are required to establish a robust AI governance and risk management framework and introduce a “human-in-the-loop” mechanism for high-risk generative AI applications.At the same time, promote the construction of network security framework and quantum security infrastructure to deal with new technological threats.
Leading the innovation of digital asset supervision.Hong Kong is committed to building a safe and reliable digital asset platform and building a comprehensive regulatory framework.At present, systems have been established for central exchanges, advisors, asset management, etc., and the final regulatory “puzzle” of trading and custody services is being finalized.Stablecoin regulations have come into effect to ensure reserve assets are properly managed and audited.
Promote regional cooperation and ecological interconnection.Emphasize the use of regional agencies such as AMRO to strengthen cross-border regulatory communication and reduce differences.In the field of digital assets, promote inter-bank blockchain interoperability (such as the Ensemble project) to achieve scale and instant settlement of tokenized products.Support the mutual listing of financial products between Hong Kong and the mainland, the Middle East and other markets (such as Saudi stock ETFs), and rebuild regional financial bridges.
Advocate for public-private cooperation and market self-discipline.The industry is encouraged to identify key risks and disclosure needs on its own, while regulatory agencies provide appropriate and flexible normative guidance to avoid “one size fits all” that inhibits innovation.
4. Major trends in the digital asset industry: compliance, institutionalization, and ecology
Based on Liang Fengyi’s discussion, it can be inferred that the future development of the digital asset industry will exhibit the following characteristics:
Regulatory compliance becomes mainstream.Global regulatory agencies are accelerating the construction of a legal framework for digital assets. Hong Kong’s practice shows that supervision is not to curb innovation, but to provide a safe and credible development environment.Compliance will become a prerequisite for enterprise access and long-term survival.
Product tokenization moves from pilot to large-scale.Tokenized green bonds, money market funds, gold products, etc. have achieved initial results in Hong Kong, with a scale of approximately US$3 billion.In the future, more traditional financial assets (such as bonds, stocks, and real estate) will realize full life cycle management on the blockchain, achieving instant settlement and confirmation of rights.
Stablecoins have entered a period of standardized development.With Hong Kong’s Stablecoin Law taking effect, transparency and regular auditing of reserve assets have become standard.Stablecoins will play a greater role in payment, settlement, DeFi and other fields, but liquidity risks must be controlled within the regulatory framework.
Interoperability has become the key to ecological expansion.It is difficult for a single blockchain to support large-scale financial applications. Cross-chain, cross-institution, and cross-border interoperability protocols and shared infrastructure (such as a shared payment layer) will become the focus of development.Hong Kong’s Ensemble project is a forward-looking attempt in this regard.
Institutional participation continues to increase.Traditional financial institutions such as banks, asset management companies, and insurance companies are gradually connecting to the digital asset ecosystem, providing services such as custody, trading, and investment products, and promoting the transformation of the market structure from retail-dominated to institutional and professional.
Asian markets lead innovation.With its young population, high degree of digitalization, and flexible regulatory environment, ASEAN, China, Japan, and South Korea will become an important testing ground for digital asset applications and innovation.Hong Kong is expected to become a regional digital asset hub with its institutional advantages and bridge role.
5. How does the digital asset industry innovate and advance?
Under Liang Fengyi’s tone of “seeking progress despite risks”, in order to achieve sustainable development, the digital asset industry must find a dynamic balance between innovation and risk management:
Pay equal attention to technological innovation and risk management.The industry should actively explore cutting-edge technologies such as zero-knowledge proofs, private computing, and cross-chain technology to improve efficiency and security.At the same time, an internal risk control system is established to strictly control smart contract audits, network security protection, liquidity management, etc. to avoid systemic risks caused by technical loopholes.
Actively embrace supervision and participate in rule formulation.Enterprises should regard regulation as a partner rather than an opponent, and actively participate in regulatory sandboxes, pilot projects and policy consultations to provide a market perspective for system design.Through compliance practices, we establish industry credibility and attract long-term capital.
Deeply explore physical application scenarios.Digital assets should not be limited to speculative transactions, but should penetrate into real economic fields such as supply chain finance, trade finance, green finance, and intellectual property securitization.Tokenization can improve asset liquidity, reduce transaction costs, enhance transparency, and create real value.
Strengthen investor education and protection.In response to the problem of insufficient risk awareness among retail investors, the industry should enhance public awareness through clear information disclosure, risk warnings, and investor suitability management.At the same time, explore investor protection mechanisms such as insurance and compensation funds to enhance market resilience.
Build an open and collaborative ecosystem.Enterprises, financial institutions, technology companies, and regulatory agencies should strengthen cooperation to promote the unification of technical standards, data protocols, and compliance interfaces to reduce interconnection costs.Hong Kong can play the role of a super connector to promote the connection between the mainland and international markets.
Cultivate a cross-border talent team.Digital assets integrate many fields such as finance, law, and computers, and there is an urgent need for compound talents who understand both technology and compliance.The industry should cooperate with universities and training institutions to build talent reserves and support long-term innovation.
Liang Fengyi’s speech drew a roadmap for “seeking progress amidst risks” for the changing financial market: it is necessary to keenly capture the opportunities brought by technological and market innovation, but also to be clearly aware of the risks involved; it is necessary to maintain the flexibility and forward-lookingness of supervision, and to adhere to the bottom line of investor protection and financial stability.For the digital asset industry, this means that on the one hand, compliance, institutionalization, and ecology will become irreversible trends; on the other hand, only through technological innovation, scenario development, ecological cooperation, and risk management and control can the industry move steadily forward in the wave of change.
