Overview of New Regulations

The Hong Kong Monetary Authority recently confirmed that starting in 2026, it will implement the capital regulatory standards for crypto assets established by the Basel Committee within the local banking system, officially incorporating crypto assets into the banking capital regulatory framework. This round of regulatory adjustments targets not only mainstream tokens from public chains like Bitcoin and Ethereum but also includes tokenized products based on real-world assets (RWA) and certain stablecoins. According to PANews and Caixin, their common characteristic is that they rely on cryptography and distributed ledger technology as "private digital assets." Under the new framework, commercial banks that hold relevant assets or provide related exposures must allocate regulatory capital as required and set differentiated risk weights for different types of exposures within their internal risk control systems, thereby affecting capital adequacy ratios and asset allocation space. The regulatory authority aims to redefine boundaries for potential volatility and cross-risk through this arrangement, while continuing to leverage Hong Kong's institutional advantages as a testing ground for crypto finance, seeking a new balance between financial innovation and prudent operation.

Regulatory Framework

From a technical definition perspective, the Basel crypto asset regulatory standards adopted by Hong Kong focus on regulating "private digital assets that rely on cryptography and distributed ledger technology" and distinguishing different types of crypto asset risk characteristics based on this. According to publicly available information from PANews and Caixin, when localized in Hong Kong, Bitcoin, Ethereum, RWA and related tokens, stablecoins, etc., will be included in the banking regulatory scope, primarily applicable to self-held positions, credit exposures, and certain off-balance-sheet businesses linked to crypto assets that are included in the balance sheet. The constraint variable remains the familiar capital adequacy ratio: banks need to allocate additional capital for relevant exposures at both total capital and Tier 1 capital levels to reflect higher risk sensitivity. It is important to emphasize that at this stage, the regulators have not disclosed specific risk weight ratios in public materials, nor have they detailed the asset grouping specifics commonly found in the Basel framework; the outside world can only confirm that they adhere to the principle requirement of "matching risk with capital occupation." This implementation is seen as a synchronized follow-up under the Basel global regulatory framework, representing the process of localizing international standards in Hong Kong rather than a completely independently designed new system.

Impact on Banking Operations

In market discussions surrounding the new regulations, some opinions suggest that "high risk weights will reduce Hong Kong banks' willingness to hold public chain crypto assets." This judgment currently mainly comes from a single channel and is essentially an analytical viewpoint rather than a confirmed fact. From the perspective of bank balance sheets and capital costs, if regulators set relatively high risk weights for crypto assets, it means that positions of the same nominal size will require more Tier 1 capital and total capital, thereby raising the capital cost per unit of assets and affecting the efficiency of fund utilization and investment portfolio decisions. The impact may not be consistent across different asset classes: mainstream public chain coins experience significant price volatility and highly market-driven trading, facing more direct capital constraint pressures on their proprietary and position businesses; tokenized products based on RWA, supported by underlying cash flows and physical assets, have risk profiles closer to traditional credit or securities assets; while some payment tokens and stablecoins are more involved in payment clearing and liquidity management. In the short to medium term, local banks may need to reassess the matching of capital occupation and returns in their proprietary crypto holdings, custody services, structured product design, and crypto-related services aimed at institutions and high-net-worth clients, adjusting their business pace and scale accordingly rather than simply exiting.

Dislocation between Hong Kong and Hainan

Caixin quoted industry analysis pointing out that "Hainan and Hong Kong will develop in a dislocated manner in terms of financial functions," a judgment that is becoming increasingly clear in the current layout of crypto financial policies. On one hand, by introducing the Basel capital standards for crypto assets, Hong Kong incorporates Bitcoin, Ethereum, RWA, and stablecoins into the banking regulatory perspective, strengthening its role as a testing ground for crypto finance in the national strategy: by embedding crypto assets into a mature banking capital regulatory system, using capital adequacy ratios and risk weights as leverage, it brings high volatility and high correlation new assets into a quantifiable and constrained mainstream financial risk framework. On the other hand, the policy focus of Hainan's free trade port leans more towards trade liberalization and the opening of the real economy, such as goods trade, service trade, tax incentives, and business environment, while its role in cross-border capital flows, complex financial products, and the aggregation of international financial institutions is distinct from that of Hong Kong. This dislocated layout will have structural impacts on the regional crypto industry chain: compliant crypto institutions, banks, and brokerage crypto business centers aimed at the global market, as well as institutions providing compliance services such as auditing, legal, and custody, are more likely to continue to cluster in Hong Kong; while RWA issuance and physical asset connections linked to trade, logistics, and real projects may unfold in a broader free trade zone and the hinterland of the real economy, with cross-border capital channels and institutional advantages being redistributed.

Global Perspective

From the perspective of the Basel global framework, the introduction of the new regulations in Hong Kong is largely synchronized in direction and pace with major financial centers, rather than an isolated action. In recent years, regulatory agencies in Europe and the United States have successively discussed and formulated rules regarding capital constraints, disclosure requirements, and risk classification for crypto assets. Hong Kong's choice to promote local implementation around 2026 is essentially in step with international standards, allowing international banking groups to apply a unified capital management logic in local operations. In the broader context of regulatory disputes, one can refer to the intense battles in California over "billionaire taxes" and other capital regulations: whether traditional wealth taxes or capital requirements for crypto assets, the underlying issue is finding a balance between "capital constraints" and "innovation incentives" and "capital retention." The differences in the localization of crypto assets across jurisdictions are often determined by risk preferences, financial system structures, and international roles: open financial centers dominated by financial intermediaries place greater emphasis on cross-border comparability and institutional acceptance; while economies focused on local markets may be more concerned about financial stability and capital outflow risks. Against this backdrop, Hong Kong aims to clarify banking crypto capital rules first, attempting to provide a compliant yet competitive operational environment for international institutions wishing to participate in crypto asset and RWA businesses while ensuring regulatory transparency and safety.

Opportunities and Limitations

Overall, the new regulations have a clear dual effect on Hong Kong banks' participation in crypto assets: on one hand, incorporating Bitcoin, Ethereum, RWA, and stablecoins into the Basel capital framework allows banks to conduct related businesses within a clear and predictable regulatory track, facilitating the deep integration of crypto finance with traditional finance in the medium to long term; on the other hand, the strengthening of capital constraints will inevitably raise the capital costs of proprietary positions and related products in the short term, suppressing some institutions' impulses to leverage and aggressive allocations. The linear extrapolation of "high risk weights = bank exit" should be approached with caution, as the outcome will also depend on the convergence speed of the international regulatory environment, the size of cross-market arbitrage opportunities, and the actual demand intensity of local clients for crypto services. In the context of gradually converging global Basel frameworks, whether Hong Kong can leverage its advantages in common law systems, mature capital markets, and the aggregation of international institutions to continue expanding the experimental space for crypto finance within prudent regulatory boundaries will be a key observation point. For market participants, what is more worth tracking are the subsequent specific implementation details, feedback from banks and licensed institutions in actual operations, and progress in cross-border regulatory coordination with other jurisdictions, rather than merely focusing on a yet-to-be-disclosed and highly technical risk weight parameter.

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