Edit | Wu on Blockchain
Lawyer Wu Wenqian joined OK in 2017, possibly as the first overseas lawyer for OK. In 2018, he joined Huobi, and in 2020, he began helping cryptocurrency companies in Hong Kong with compliance paths, making him one of the most knowledgeable lawyers in the Greater China region on the cryptocurrency journey and Hong Kong regulation. This podcast mainly discusses questions about Hong Kong and all the hot topics.
For more content, you can read his previous articles:
- "Twenty Key Points: Understanding the Latest Cryptocurrency Consultation Documents in Hong Kong" link
- "New Policy Launch: Interpreting the 'Transitional Arrangements' for Cryptocurrency Platforms in Hong Kong" link
Below is a summary of the edited content, and the full text can be listened to in the podcast.
Xiaoyuzhou: link
Youtube: link
Please introduce your resume, Lawyer Wu:
I joined OK in 2017, and I should be considered the first lawyer for the organization. At that time, I provided legal services for the OK Group in Hong Kong. Later, in 2018, I moved to Huobi Group, mainly responsible for compliance and overseas mergers and acquisitions, including some important overseas legal affairs. I also participated in the relevant work of acquiring listed companies in Hong Kong. In 2020, I established my own consulting company and, in 2022, co-founded a venture capital company with several partners. In the same year, I also participated in the application for licenses 1, 4, and 9, and successfully obtained them, allowing the company to legally conduct virtual currency-related business. In addition, I also serve as an advisor at a law firm, helping multiple companies apply for licenses and providing consulting services for different virtual currency projects.
Is the current speed of licensing in Hong Kong normal?
Regarding this, OSL and Hashkey, these two licenses were applied for earlier, as well as another HK company that has entered the aip stage, all started the application process during the sandbox period from 2018 to 2019. Due to the web3 declaration issued by the Hong Kong government in October last year, the applications of these companies have been relatively fast. The other applications are mainly based on the new VASP license passed in December last year. I believe this issue should be viewed in stages. The application speed in 2018 and 2019 was relatively slow, mainly because the sandbox program required time for the Securities and Futures Commission to gain a deeper understanding and knowledge of the industry's operations. However, in June of this year, when the Securities and Futures Commission had a certain level of understanding of the industry, the new VASP license system began to be implemented. Therefore, it is expected that future license applications will be more rapid and smooth. Especially for those companies that had business in Hong Kong before June 1, they need to submit their applications before March 1 next year to continue operating. I expect that more than ten, or even dozens of companies will submit applications before this deadline. Therefore, I believe that the Hong Kong government and the Securities and Futures Commission are prepared for this and are expected to process a large number of license applications. With the current preparation and process, I believe the speed of future applications will significantly increase.
How do you view the phenomenon of compliant exchanges providing only a small number of tokens to retail users?
In my opinion, this phenomenon is caused by a series of strict policies and conditions. First, for any token to be traded by retail users, it must have at least 12 months of liquidity history. This is a basic requirement that ensures the stability and reliability of the token. Secondly, the token needs to be listed on at least two indices, and these indices cannot be limited to the cryptocurrency field, but also need to include some traditional indices, such as Bloomberg, etc. The existence of these conditions ensures that the tokens listed on compliant exchanges in Hong Kong are rigorously screened and certified.
However, the situation may be different in the future. Many institutions are already preparing for index-related consulting work in Hong Kong and overseas. With the establishment and improvement of these indices, we can foresee an increase in the types of tokens available for trading in the future. This is not only one of the strategies for the Securities and Futures Commission to protect retail investors but also reflects the intention to gradually open the market while ensuring safety. However, given the various security incidents in Hong Kong in recent years, I believe the Securities and Futures Commission will be more inclined to protect retail investors, and may even sacrifice the speed of listing to ensure safety. Overall, although the market will gradually open in the future, the process will be cautious and prudent.
How do you view the platform points introduced by HashKey?
I believe that the HSK platform points introduced by HashKey are a very compliant and clear path. As far as I know, HashKey issued HSK only after obtaining approval from the Securities and Futures Commission, which itself reflects its commitment to compliance. The functions and uses of HSK are also subject to a certain degree of regulation, providing a good demonstration path for the listing of other currencies or the operation of future exchanges.
Specifically, this path first obtains approval from the regulatory authority, then carries out promotion and other related activities on the platform, and finally gradually allows listing and retail trading. This is not only the way the Securities and Futures Commission expects, but also provides the regulatory authority with sufficient time to understand the liquidity and functions of new currencies, ensuring a balance and protection of interests among project parties, regulatory authorities, platforms, and users. This prudent and transparent approach is beneficial for the healthy development of the entire industry.
What are the highlights of Hong Kong's policies this year?
First, I would like to talk about the issue of OTC trading. OTC plays an important role in the Hong Kong market, especially considering that Hong Kong has been leading in global OTC trading volume this year. Institutions such as OSL have made significant contributions in this area. Since around 2013, Hong Kong has been an important OTC flow center. OTC has a profound impact on the entire currency circle, especially on the flow of funds. Hong Kong's contribution to the OTC market should not be underestimated.
In terms of history, the Hong Kong government issued a statement on bitcoin business around 2013, proposing that institutions could operate by obtaining a customs MSO license. However, Customs later stated that bitcoin does not belong to the category of currency, and institutions purely engaged in bitcoin business do not need an MSO license. During this time, Hong Kong's attitude towards cryptocurrency regulation seemed quite vague until the Securities and Futures Commission later established a clear regulatory direction. Therefore, although OTC may be mentioned in future regulations, I believe it will not be a short-term focus.
On the contrary, if Hong Kong plans to become a center for web3, stablecoins may become a more prominent topic. The HKMA issued a document on stablecoins in 2020 or 2021, mentioning the possibility of introducing a more specific stablecoin regulatory framework this year. Stablecoins, as a key link between the virtual currency industry and the traditional financial industry, are of great significance to the entire currency circle. If stablecoins can be effectively regulated, the demand for OTC may correspondingly decrease.
In addition, regarding the issue of STO, if a stablecoin regulation or license can be introduced, it will effectively connect the ecosystem of virtual currency with the traditional industry. For example, if a brokerage firm with a license number one can accept stablecoins, settlement may be conducted within the brokerage firm. This will greatly promote anti-money laundering regulation and may bring more financial innovations, such as lending, derivatives, and other OTC market products. Therefore, the development of stablecoins may become the key to integrating the Hong Kong currency circle into the traditional industry and rapidly developing it. Overall, although OTC remains an important part of the Hong Kong market, in future regulatory policies, the construction and regulation of stablecoins and their related ecosystems may become more important highlights.
What impact will the collapse of non-compliant exchanges have on Hong Kong's regulatory policies?
At a high level, recent collapses of exchanges such as JPex have already triggered investigations by the police and the Securities and Futures Commission. Interestingly, when talking to friends outside the Hong Kong cryptocurrency circle, most of them are not familiar with these platforms, indicating that their impact may be mainly limited to the local Hong Kong market. Although these events have a significant impact on retail investors, regulatory agencies, the Hong Kong government, and the international industry, I believe that globally compliant exchanges have formed an interconnected network, making compliance an inevitable trend.
The virtual currency and web3 declaration announced by the Hong Kong government last year has already outlined a clear roadmap, including ETF exchange licenses, and policies that may introduce stablecoins this year. Therefore, regardless of the situation with exchanges like JPex, it is unlikely to have a fundamental impact on the overall policies of the Hong Kong government. With the implementation of the licensing system, the number of problematic exchanges is expected to decrease. Therefore, concerns about these collapse events should be limited, both within the industry and at the government level, as future strategies are already clear.
Will the Hong Kong Stock Exchange attract blockchain companies to go public in the future?
The Hong Kong Stock Exchange holds a unique position, as it needs to create profits for shareholders while also playing a regulatory role, overseeing all listed companies in Hong Kong. Therefore, the Hong Kong Stock Exchange must be extremely cautious in handling its affairs. Based on my experience during the Huobi era, communications and announcements with the Hong Kong Stock Exchange were always very cautious. Over time, the Hong Kong Stock Exchange and the Securities and Futures Commission are gradually deepening their understanding and awareness of the blockchain industry, so I believe they may be more open to virtual currency-related policies in the future. Although recent issues with some exchanges may slow down policy advancement, if the Hong Kong government does intend to build a web3 center, the Hong Kong Stock Exchange will undoubtedly be involved. With more and more brokerage firms and licensed companies entering this industry, the Hong Kong Stock Exchange will also become more actively involved in this field.
What are the advantages and disadvantages of Hong Kong's regulatory policies compared to Singapore?
Hong Kong and Singapore each have their own characteristics in terms of cryptocurrency regulation and development, and directly comparing the two is not simple. Hong Kong traditionally places more emphasis on the capital market, while Singapore may be more inclined towards conservative or fixed-income investments. Therefore, for cryptocurrency funds or financing development, Hong Kong, with its long financing history and numerous investment institutions, may be the better choice.
In terms of regulatory experience, Singapore is indeed about two to three years ahead of Hong Kong, giving local companies an earlier start and more accumulated experience. This early experience may give Singapore a slight advantage in terms of policy acceptance and corporate adaptability.
However, recent developments seem to indicate that Hong Kong may have certain advantages in some aspects. Especially in the past year, Hong Kong's handling of cryptocurrency issues has shown its determination and aggressiveness. For example, the Hong Kong Monetary Authority inquiring why major banks do not allow virtual currency companies to open accounts is a rare proactive action globally. The Hong Kong government clearly hopes to establish Hong Kong as a web3 center and has adopted a strategy of overall government coordination. In contrast, Singapore's attitude may become more conservative after the FTX incident, and its previously rapid development pace has slowed down.
Nevertheless, both Hong Kong and Singapore are good locations for cryptocurrency development, especially against the backdrop of regulatory uncertainty in the United States. Asia will undoubtedly become a hotspot for the development of virtual currencies. Personally, I am more confident in Hong Kong because the Hong Kong government has already outlined a clear roadmap and has shown a firm determination for development and a proactive planning attitude.
Taking all factors into consideration, although Hong Kong and Singapore each have their advantages, Hong Kong may have a more pronounced performance in terms of proactiveness, planning, and government determination, which may give it a place in the future development of the virtual currency field.
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