Original title: “Pure dry goods | One article to understand, full analysis of Hong Kong’s virtual asset regulatory norms”
Written by: Xiao Sa Legal Team
Yesterday, the Hong Kong Financial Secretary officially released the “Policy Declaration on the Development of Virtual Assets in Hong Kong”, which has attracted great attention from the mainland to Singapore to Canada and Australia. It is true that this is a major benefit, but we should not be superficial and should seriously study practical problems. This article will summarize the legal norms and policies for the regulation of virtual assets in Hong Kong, and provide it to old friends in the circle for your reference.
We also look forward to your choice of Sister Sa’s team and Dacheng Hong Kong Office to provide legal services and think tank consulting services.
1. Will Hong Kong’s policies related to virtual assets affect the mainland?
In the circle of friends, some people in the industry said that the clarion call for the financialization of virtual assets in Hong Kong is the prelude. In the future, the mainland will also release the financial development of virtual assets. Sister Sa disagrees with this view. In my opinion, Hong Kong and the mainland are complementary in the development of virtual assets. At the same time, Hong Kong’s open attitude towards the financialization of virtual assets will alleviate some mainland case handling agencies’ concerns about virtual asset advocates and occasional transactions.
On the one hand, Hong Kong has become windy, indicating that my country’s legal attitude towards virtual assets is quietly making a strategic layout. The financial innovation of virtual assets, the entry of virtual assets into Web3.0 and the Metaverse are major opportunities in the future. As an international financial center, HK will definitely become a bridge between the mainland and overseas in the financial innovation of virtual assets. It will also attract more projects, personnel and assets to enter Hong Kong for innovation attempts. There is no doubt that this news is a major positive. At present, friends in Singapore are still waiting to see. We believe that in the future, the virtual asset license in Hong Kong will gradually be released, and the number of licenses 1 and 9 will increase, which will stimulate more “preachers” of the year. “Returned from abroad to “build a nest” in Hong Kong to develop virtual asset business.
On the other hand, the mainland will still be cautious about the legal nature of virtual assets. First of all, we can confirm that: the mainland will not give mainstream cryptocurrencies such as Bitcoin the characterization of “contraband”, and holding mainstream cryptocurrencies such as Bitcoin will still be protected in accordance with Article 127 of the Civil Code; secondly, based on distribution The alliance chain and private chain of the accounting technology will continue to deepen in the fields of shipping, supply chain finance, power transmission transactions, and bank billing, and will be gradually iteratively upgraded; thirdly, the ICO behavior based on the public chain will still be given ” Illegal financing”, the main point of compliance is the connection point that does not have domestic jurisdiction (for details, see the previous articles of Sister Sa’s official account); Finally, NFT and Web3.0 are highly compliant in the Mainland and Hong Kong, and special attention should be paid to Anti-money laundering risks and financialization issues.
As for the “Crypto Hong Kong dollar”, we also welcome it very much. Similarly, the Crypto renminbi has been gradually accepted by consumers in online shopping. This year’s Double Eleven, a large online shopping platform has launched a Crypto renminbi application scenario and encouragement to use it. Fun activity.
“Green Bond Tokens” enable the Hong Kong government to tokenize the issuance of green bonds for institutional investors to subscribe. The logic behind this attempt is very deep. We hope that more institutional investors will be optimistic about green bond tokens, so as to contribute to the development of Hong Kong and the economic development of the Mainland.
2. Sort out the regulatory framework of the blockchain industry in Hong Kong
At present, Hong Kong currently has three main regulatory agencies for virtual assets: (1) Hong Kong Securities and Futures Commission (SCF, hereinafter referred to as “SFC”); (2) Hong Kong Financial Services and the Treasury Bureau (hereinafter referred to as “SFC”); “Treasury Authority”) and (3) the Hong Kong Monetary Authority (“HKMA”). Among them, the Securities Regulatory Commission is the main force of supervision, and virtual assets are divided into two parts: regulated “securities financialized assets” and unregulated “non-securities financialized assets”, while the Treasury Bureau and the HKMA are from Different supervision angles assist supervision (Treasury Bureau, as the second main supervisory force, mainly starts from combating virtual asset money laundering and terrorist financing activities). Under the planning of the three regulatory agencies, the Hong Kong virtual asset licensing supervision system has gradually become clear. Of course, referring to the classification of virtual Crypto artworks such as NFTs in the “Responsible Financial Innovation Act” of the United States, it is not ruled out that Hong Kong’s market supervision and management agencies will join the supervision army in the future to target virtual assets (pure Crypto art) of “non-financial securitization”. products) to issue special regulatory norms.
Hong Kong’s regulation of virtual assets can be roughly divided into two periods:
The first stage: 2017-2018, focusing on regulating ICO behavior. The supervision idea in this period is to supervise the virtual asset activities with financial attributes by analogy with traditional securities and financial products, mainly by the CSRC to regulate ICO behavior.
The second stage: from the end of 2018 to the present. During this period, with the “2018 Statement” issued by the China Securities Regulatory Commission in November 2018, Hong Kong’s regulatory thinking on virtual assets began to change, and the focus expanded from ICO to the supervision of the entire virtual asset activities, and gradually established a “sandbox”. Licensing and Supervision” framework system, and the licensing rules are still being refined through various normative documents. Below, we will explain the Hong Kong virtual asset supervision system and implementation rules in detail in the form of charts.
The first stage
During this period, in March 2018, there was a typical and iconic ICO event. A group conducted a public ICO offering in Hong Kong, which was identified by the SFC as “unauthorized marketing activities and unauthorized Regulatory activities”, the ICO was eventually halted by the SFC, and the group was ordered to return its tokens to Hong Kong investors, while canceling subsequent related ICO transactions.
In terms of the current licensing supervision practice in Hong Kong, it is relatively cautious at present. At present, only two virtual asset trading platforms have successfully obtained trading licenses. One is issued to OSL (Digital Securities Limited, a subsidiary of a technology group) in 2020. OSL DS); one is Hashkey Group, which has just obtained a license in the first half of this year. It can be inquired through public channel information that OSL holds the No. 1 license (securities trading) and the No. 7 license (automated sales).
It should be noted that, according to the “consultation summary” of the Treasury Bureau, although the two platforms have obtained licenses, the only investors allowed to trade are Hong Kong professional investors. Hong Kong’s requirements for professional investors are: (1) individual investors, including their financial assets (cash, stocks and other highly liquid assets) reaching HK$8 million or US$1 million; (2) institutional investors, reaching 40 million HKD or USD 5 million. In addition, transactions are required to perform KYC obligations and investor risk assessments to ensure that customers have sufficient net assets to bear risks and transaction losses.
Sister Sa’s team believes that, according to the specific business types of the platform, virtual asset trading platforms may need to consider obtaining the fourth license (advising on securities) and the No. 9 mentioned in the Hong Kong Securities Regulatory Commission’s 2018 statement if they want to operate in compliance. Licensing (management of virtual assets such as securities or futures contracts), the words of one company, are for reference only. In addition, it is a general trend in Hong Kong to incorporate all virtual asset trading platforms into the regulatory framework and licensing system in the future. According to the regulatory documents of the Treasury Bureau and relevant laws and regulations on securities in Hong Kong, any person who engages in regulated virtual asset activities without a license may be involved in a criminal offence, which can be subject to a maximum penalty of 7 years in prison and a fine of 5 million yuan.
3. The complementarity of the blockchain industry segments in Hong Kong and the Mainland
Regarding the regulation of virtual currency, the mainland issued the “Announcement of the People’s Bank of China, the Central Internet Information Office, the Ministry of Industry and Information Technology, etc. on Preventing the Risk of Token Issuance and Financing” in 2017, which was later called the announcement of the three associations. This announcement clearly defines token issuance financing as an unapproved illegal public financing behavior, which is related to the illegal sale of token tickets, illegal issuance of securities, illegal fundraising, financial fraud, pyramid selling and other illegal and criminal activities. It explicitly prohibits any organization or individual from illegally engaging in token issuance financing activities, which basically cuts off the way of token financing in the mainland.
In this regard, Hong Kong’s attitude is to allow ICO (Hong Kong subdivides securities token issuance into STO), but it needs to be subject to strict licensing supervision, because the financial attributes inherent in such virtual assets constitute “regulated financial product”. In 2017, the Hong Kong Securities Regulatory Commission issued the “Statement on Initial Coin Offerings”. According to the statement, the following three situations will be identified as securitization ICOs and require special supervision: if the tokens sold represent the equity or ownership of a company Equity, the purpose of the token is to enter into or confirm a debt or debt borrowed by the issuer, the proceeds from the sale of the token are collectively managed by the ICO program operator and invested in different projects, thereby allowing the token holder to Participate in sharing the rewards provided by the project.
For NFTs, the current supervision of NFTs in the mainland is still relatively extensive overall supervision, and more is to remind investors and consumers of traditional legal risks such as fraudulent gambling that may exist in NFTs. In April 2022, the mainland released the “Proposal of China Internet Finance Association, China Banking Association, and China Securities Association on Preventing Financial Risks Related to NFTs”. From this initiative, it can be found that the mainland separates NFTs from financial activities. , clearly proposed to curb the tendency of NFT financial securitization and prevent NFT financialization. The policy tone for NFT is to affirm its significance in promoting Crypto cultural creation in the real economy, promoting industrial digitization, and resolutely stay away from NFT financialization.
In this regard, Hong Kong’s supervision has been divided into more detail. Hong Kong recognizes the existence of financialized NFT, and actively divides NFT into two parts: collectible NFT and financial asset NFT. For collectible NFTs, its activities do not fall under the supervision of the CSRC at all, but for financial NFTs, its promotion and distribution must be regulated by the CSRC and can only be carried out after licensing. So readers may be wondering, where is the line between the two? The Hong Kong Securities Regulatory Commission pointed out that if a certain NFT constitutes a similar structure to securities or interests under collective investment, it is defined as a financialized NFT that requires a licensed issuance.
According to the Hong Kong Securities and Futures Ordinance, securities are defined as “shares, stocks, debentures, bond stocks, funds, “bonds or notes” sounds a bit too general, and collective investment interests are also classified as securities. Under this definition, a collective investment scheme is defined as comprising four elements: “It must involve arrangements for the property; the participants have no day-to-day control over the management of the property; the property as a whole is owned by the person or agent operating the arrangement The person administers, or the participant’s contributions and the profits or proceeds paid to them are pooled; and the purpose or effect of the arrangement is to enable the participant to share or receive the profits derived from the acquisition or management of said property , income or other returns.” Those who meet the above conditions will be defined as financialized NFTs for license supervision.
In general, if you just do NFT art collections, both the mainland and Hong Kong can do it, but the mainland has a larger potential market and richer IP heritage. However, if you want to go through the financialization of NFT, there is a relatively large legal risk in the mainland. You can consider Hong Kong to get a license.
In terms of the underlying technology of the blockchain, we all know that China and the United States have chosen two completely different directions on this track. China has chosen the Metaverse to take the direction of hardware entity empowerment, and the United States has chosen web3.0 to take the direction of software creation. , the direction also determines the policy. The mainland is relatively friendly to the development policy of the underlying technology of the entire blockchain. In 2020, the Ministry of Education issued a notice of the “Blockchain Technology Innovation Action Plan for Colleges and Universities”. By 2025, a number of blockchain technology innovation bases will be established in colleges and universities, and a group of blockchain technology research teams will be cultivated.
After this document, a notice of blockchain application in various specific directions was released, including the “Guiding Opinions of the Ministry of Industry and Information Technology and the Central Network Information Office on Accelerating the Application of Blockchain Technology and Industrial Development”, “Ministry of Transport” Notice of the General Office on Printing and Issuing”, and even in May 2022, the Supreme People’s Court issued the “Opinions on Strengthening the Judicial Application of Blockchain”, affirming the application prospects of blockchain certificate storage technology in the judicial field. In this regard, there are not many encouraging norms in Hong Kong.
In general terms, the mainland encourages the development of virtual technologies that are more closely related to entities, including NFTs that empower the real economy and the underlying technology of blockchains that promote the development of entities; Hong Kong, on the other hand, has more favorable conditions for the financialization of virtual properties. loose.
write at the end
The policies of Hong Kong and the mainland are different, which also leads to different development directions in the future, and the division of labor is also completely different. The mainland will continue to provide Hong Kong with financial tools, Crypto art IP, technical tools, etc. in the future, and support Hong Kong in building it into a world-leading virtual asset economic core area for a long time. Hong Kong, on the other hand, has assumed the responsibility of developing China’s virtual economy, concentrating resources to build a regulated, fast-growing, healthy competition, open and inclusive virtual economic center. Sister Sa’s team will continue to pay attention to the virtual asset regulatory policies in Hong Kong in the future, and bring professional regulatory interpretation to everyone in the first time.
Disclaimer: This content is the author’s independent opinion, does not represent the position of 0x Finance, and does not constitute investment advice. Please treat it with caution. If you need to report or join the exchange group, please contact WeChat: VOICE-V.
Source: Xiao Sa legal team