Hong Kong accelerates RWA tokenization, crypto licensing push in new policy statement

The Hong Kong government announced a new major policy statement for digital assets today in a bid to fortify its status as a global crypto hub.

Hong Kong's Policy Statement 2.0 contains the "LEAP" framework, which builds on top of its initial policy framework released in October 2022, aiming to advance the local digital asset industry with four key initiatives.

"[Through] blockchain technology, more efficient financial transactions at a lower cost can be realized to bring in more inclusive financial services," Hong Kong Financial Secretary Paul Chan said. "The Policy Statement 2.0 sets out our vision for DA development and showcases the practical use of tokenization through application, with a view to boosting the diversification of use cases."

Such policy statements are important indicators for the government's future approach for the crypto industry. Since releasing its previous crypto policy document in 2022, Hong Kong has introduced several measures, including a licensing regime for crypto exchanges and an upcoming framework for stablecoin issuers.

Policy statement 2.0

The latest policy statement said the government plans to streamline the legal and regulatory framework for crypto service providers by establishing a comprehensive regulatory system for digital asset exchanges, stablecoin issuers, dealing service providers, and custodians.

Under the new policy, the Securities and Futures Commission (SFC) will be the primary authority for upcoming licensing regimes for digital asset dealers and custodians, while the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority will lead a legal review to facilitate real-world asset tokenization . 

The policy also detailed efforts to expand the suite of tokenized products, standardizing the issuance of tokenized government bonds and incentivizing the tokenization of RWAs to enhance liquidity and accessibility. This includes clarifying tax rules for tokenized exchange-traded funds and supporting secondary market trading for these tokens on crypto exchanges.

Moreover, Hong Kong is set to promote the tokenization of a broader range of assets across sectors such as precious metals, non-ferrous metals, and renewable energy.

To boost use cases and cross-sector collaboration, the Hong Kong government said it will foster cooperation among regulators, law enforcement agencies, and technology providers for the development of digital asset infrastructures. 

The release said the FSTB and the SFC plan to conduct public consultations on the licensing regimes for digital asset dealing service providers and custodians in the near future.

Significant step forward

"The Hong Kong government's commitment to advancing real-world asset (RWA) tokenization through cross-departmental collaboration is a significant step toward establishing the city as a global leader in digital asset innovation," Eugene Cheung, chief commercial officer of OSL Group, told The Block.

Cheung added that the government's recent tax concessions  for specific crypto assets "demonstrates a proactive response to market demands."

In May, Hong Kong's Legislative Council passed the legislation establishing a licensing regime for stablecoin issuers. The licensing regime for stablecoin issuers will come into effect on Aug. 1.

Finance Secretary Chan said earlier this month that the licensing regime is expected to boost Hong Kong's role as a "global offshore yuan hub."