Author:** Wu Says Blockchain**

The content of this article comes from two discussions at the Finternet 2025 Asia Digital Finance Summit. The first part discusses "The Evolution of Digital Asset Regulation from Hong Kong to the Middle East," hosted by Rocky Tung, Director and Head of Policy Research at the Hong Kong Financial Development Council. The guests include Elizabeth Wong, Director of Intermediaries and Head of Fintech at the Hong Kong Securities and Futures Commission (SFC), and Wai Lum Kwok, Senior Executive Director of the Financial Services Regulatory Authority at the Abu Dhabi Global Market (ADGM). The second part discusses "Breakthroughs, Innovations, and Safeguards in Hong Kong," hosted by Gary Tiu, Executive Director and Head of Regulatory Affairs at OSL Group, with guest Eric Yip, Executive Director of the Intermediaries Division at the Hong Kong Securities and Futures Commission.

The Finternet 2025 Asia Digital Finance Summit was held on November 4 in Hong Kong, centered around the theme "Connecting Chains, Building the Future," supported by over ten organizations including OSL Group, Invest Hong Kong, the Hong Kong Financial Development Council, and Hong Kong Cyberport.

Previously, on November 3, the Hong Kong Securities and Futures Commission (SFC) issued a circular allowing local licensed virtual asset trading platforms to share order books with overseas subsidiaries or affiliated platforms under the same group for the first time. This means that orders from Hong Kong and overseas can be matched in the same liquidity pool, allowing Hong Kong investors to directly transact with overseas markets and enjoy deeper liquidity and a trading environment closer to international prices.

Audio transcription completed by GPT, errors may exist. The views of the guests do not represent those of Wu Says. Readers are advised to strictly comply with local laws and regulations. Please watch the full content on YT.

Part One: The Evolution of Digital Asset Regulation from Hong Kong to the Middle East

Changes in Hong Kong's Digital Asset Regulatory Approach

Rocky: The Financial Services Development Council began focusing on cryptocurrencies in 2021, while the Hong Kong Securities and Futures Commission (SFC) started as early as 2018. As an international financial center, Hong Kong cannot ignore the emerging field of cryptocurrencies. In 2021, we decided to expand access to cryptocurrencies beyond just professional investors.

In this context, Hong Kong's regulatory approach in the digital asset space has been evolving, and the SFC's regulatory scope has been expanding. Elizabeth, how do you view the changes in the SFC's digital asset regulation?

Elizabeth: The SFC has been regulating digital assets since 2018, aiming to create a safe digital asset ecosystem. We adopted a cautious approach initially by creating a closed ecosystem for regulation. As the market developed, we found that this closed environment limited Hong Kong's connection to global liquidity.

To enhance liquidity, we decided to allow local investors to access global markets. Recently, we issued two notices allowing licensed virtual asset trading platforms to share global order books with overseas affiliates, promoting the connection between Hong Kong and global markets.

The issuance of this notice took a considerable amount of time, primarily to ensure close collaboration with the industry, understand potential risks, and provide a clear regulatory framework for the industry. We hope to promote compliance and enhance trust within the industry through this approach.

The industry has gradually recognized the importance of regulation, and they support and look forward to obtaining licenses, which helps promote the sustainable development of the industry.

Changes in Abu Dhabi's Regulatory Framework

Rocky: About two years ago, when I visited ADGM (Abu Dhabi Global Market, an international financial free zone), Abu Dhabi did not pay special attention to digital assets, but now it has excelled in this field, providing forward-looking planning. Can you confirm if that was the case back then? If so, what contributed to the change?

Wai Lum: When you visited in 2021, we indeed did not focus on cryptocurrencies, although it was important to us. In 2018, we launched a framework at a time when the global discussion was around anti-money laundering and combating the financing of terrorism risks. We decided to go beyond these issues and collaborated with multiple agencies, referencing frameworks from Japan's FSA and New York's Department of Financial Services. Ultimately, we decided to extend the regulatory framework of traditional finance to the crypto space, viewing it as a new asset class.

The rationale behind this decision was to integrate traditional finance with new finance. While this means that tech companies must meet higher thresholds, we see an increasing trend of cross-sector integration. Today, many securities, cryptocurrency brokers, and traders only need one license to cover multiple areas.

The market is also changing. Since 2018, the main market participants have been companies providing price discovery and trading services for individual investors. After the collapse of FTX, more institutional investors are focusing on custody solutions, and as custody technology matures, services like staking and lending are gradually attracting more participants. Currently, ADGM has formed a preliminary ecosystem that includes brokers, exchanges, stablecoin issuers, lending platforms, etc. We also see traditional financial institutions (TradFi) and decentralized financial institutions (DeFi) deploying their respective strategies. This is a promising field, and as regulators, our close interaction with the industry is crucial.

Regulatory Challenges of Cross-Border Transactions and Capital Flows

Rocky: I feel that there are many similarities between the regulators of ADGM and Hong Kong. We have an international background while also having our own characteristics, and we hope to establish connections with different markets and parties. We want to proceed steadily rather than aggressively inviting everyone to participate, only to see everyone quickly withdraw when problems arise. We do not want to see that happen. Based on this, I would like to ask both of you the same question: What similarities do you see in the market? What differences exist? How can participants in one market leverage and enter another market?

Wai Lum: I see many similarities, and over time, regulatory frameworks will increasingly converge. We primarily view cryptocurrencies from a traditional finance (TradFi) perspective, focusing on investor protection and the safety of the financial system. From this perspective, the regulatory frameworks of markets like Hong Kong, Singapore, and the UAE are becoming more aligned, sharing many elements such as asset segregation protection and market abuse regulations. Therefore, the convergence of regulatory frameworks is crucial for businesses to expand. Companies in both Hong Kong and the UAE are seeking expansion, making the convergence of frameworks vital for businesses. While each market has different priorities and starting points, the differences will gradually diminish over time.

Hong Kong's regulatory priority is to start from scratch and flexibly respond to changes, while many mature international financial centers need to adjust existing frameworks. Therefore, the starting points differ across regions, and differences still exist.

Elizabeth: I agree. International standard-setting bodies also require regulators in various countries to adopt a unified regulatory approach. The current principle is "same activity, same risk, same regulation." This is also our approach in Hong Kong and Whilam's in the UAE. We are both promoting the construction of the digital asset ecosystem under traditional financial frameworks. I also agree with Whilam's view that many companies consider the regulatory environment when choosing headquarters to enhance trust with investors and clients, thereby supporting their expansion into other global markets.

Regarding tokenized assets, global regulators are also adopting a similar attitude. We view these assets as securities, and if they are securities, they are regulated according to securities regulations. This approach has gained widespread support globally, especially for fintech companies, which are more adept at this operation. Therefore, whether in the cryptocurrency market or traditional finance, large companies are focusing on the digital asset ecosystem.

Progress of Hong Kong's Regulation in Promoting Digital Asset Ecosystem Construction

Rocky: We need to establish an effective ecosystem that connects traditional finance with the digital asset space while also aligning with other markets. Hong Kong faces complex challenges in this regard, especially concerning the issuance of OSL's first license. Why was the approval process so lengthy? How can we ensure the healthy development of the ecosystem while adhering to regulations in the future?

Elizabeth: We acknowledge that the approval process for virtual asset trading platform licenses in Hong Kong has been lengthy. Part of the reason is that when we began collaborating with OSL, the regulatory agency was gaining in-depth understanding of the digital asset market for the first time. We worked closely with OSL and spent a lot of time understanding its business and the characteristics of digital assets. Many companies still hold the view of "we come from the cryptocurrency world, not entirely part of traditional finance," which also takes time for them to adapt to the regulatory requirements within the traditional finance framework.

Currently, we are collaborating with the government to release two consultation papers aimed at improving Hong Kong's digital asset ecosystem. We are considering providing licenses for virtual asset brokers and custodians to ensure that every link is regulated. We believe that through compliant regulation, Hong Kong can establish a sustainable market.

We have also received suggestions that regulation should extend to virtual asset advisory services and fund management services. We are working with the government to explore whether to include these in the regulatory scope. Once a complete ecosystem is established, more overseas companies will enter Hong Kong, bringing global liquidity and further promoting the development of the Hong Kong market.

How ADGM Ensures Safe, Clear, and Traceable Transactions

Rocky: How does ADGM ensure seamless cross-border transactions and capital flows? How do you enhance efficiency and ensure that these transactions are safe, clear, and traceable?

Wai Lum: Being a pioneer is very challenging, but we believe that transformation in this field is imperative. We have always been proactive, engaging with the industry in advance because we do not have ready-made reference points. We apply the traditional financial framework to the new financial space to address issues like interoperability and efficiency.

I believe that the way to ensure future adaptability is to maintain close interaction with the industry. We often learn together with the industry, and industry participants become our link to other jurisdictions. When we formulate frameworks, industry participants come to us with products and business models, and we collaborate with them to understand their needs and tailor the framework. Through this process, we have gradually developed frameworks for stablecoins, tokenized assets, lending platforms, etc.

Most of these businesses support compliance and are willing to work with us to adhere to the rules. They also inform us of issues encountered by other jurisdictions during implementation, helping us to be more cautious in our framework formulation. We need to ensure future adaptability and maintain a sense of responsibility in line with international standards and industry developments. Straying from the mainstream may lead to difficulties for businesses when expanding overseas. Therefore, as regulators, maintaining close ties with the industry and participating in global regulatory dialogue is crucial. We regularly participate in discussions with the Financial Stability Board (FSB), the Stablecoin Association, and others to help us stay in sync with industry dynamics.

Practical Applications of Tokenized Assets and Market Feedback

Rocky: Communication with industry participants is crucial; we cannot become "outliers" in regulation and should maintain dialogue with other regulatory bodies to ensure sustainable regulatory development in each jurisdiction. Tokenization has recently become a hot topic; does Hong Kong have any successful cases to share?

Elizabeth: To be honest, progress has been relatively slow. We issued notifications related to tokenization in 2023, but we are still discussing whether we can find practical application cases by 2025. Our job is to issue regulatory guidance, clearly informing the industry how we will regulate tokenized securities under securities law. We are also involved in the Hong Kong Monetary Authority (HKMA) "Project Cluster," providing regulatory guidance to help the industry understand how to construct tokenized securities, design structures, and apply for licenses.

Our experience with tokenization is similar to that in the digital asset market. We sought industry feedback on trading platform policies but did not receive sufficient responses. Therefore, we hope the market can participate more actively to drive this process forward.

We are thinking about how to accelerate the process and promote market-driven innovation. We plan to launch an acceleration program in the coming months to drive more practical application cases, whether in tokenized assets or other areas of digital assets.

How to Properly Address Cross-Border Interoperability and Regulatory Challenges

Rocky: Cross-border interoperability is a significant challenge for both practitioners and regulators. How do you ensure that this challenge is properly addressed to ensure seamless cross-border transactions?

Wai Lum: Interoperability can be divided into intergovernmental, inter-industry, and the interoperability between technology and regulation. Each level of interoperability is different.

Regarding intergovernmental interoperability, the most effective approach is to maintain continuous communication. Digital assets are inherently cross-border, and more companies are operating in multiple jurisdictions. We must ensure interoperability through dialogue, especially when explaining our position to other regulatory agencies. Different jurisdictions and regulatory bodies have different priorities and considerations, and we screen industry players willing to develop with us, ensuring they share our vision and wish to move forward together.

Currently, the industry model is notably fragmented, with some companies using specific blockchains and others opting for their own Layer 1 solutions. As regulators, we focus not only on intergovernmental interoperability but also on the interoperability between regulation and industry, and between regulation and technology. To this end, we incorporate regulatory technology (RegTech) and sub-regulatory technology (SubTech) as part of our strategy. The digital native characteristics of cryptocurrencies allow us to connect, monitor, and track online through digitization. For example, in the fiat-backed token and stablecoin framework, we can track on-chain circulation in real-time and connect to reserve accounts via APIs to ensure data matching accuracy. This is interoperability between regulation and industry.

Additionally, we encode rules and regulatory requirements into machine-readable formats, hoping that in the future, smart contracts can interact with our rules, read and understand rule changes in real-time, and make corresponding adjustments.

Elizabeth: In February of this year, we released the "Digital Asset Planning Roadmap," which includes issues such as virtual asset derivatives trading and virtual asset lending. We are also considering how to strengthen dialogue with the industry to understand market trends and develop more reasonable regulatory policies. We are exploring how to enhance monitoring of the industry, especially as we integrate more regulatory systems and participants, ensuring we can manage market activities.

These initiatives are what the market can look forward to; although they cannot be fully realized in the short term, we are working hard to promote them.

Part Two: Breakthroughs, Innovations, and Safeguards in Hong Kong

How Hong Kong's Cryptocurrency Policy Avoids Disconnection from the Market

Gary: As a policymaker at the SFC, how do you ensure the long-term applicability of policies and avoid disconnecting from market changes?

Eric: In fact, pursuing perfection does not always yield the best results. As I once told my colleagues, you don't always have to actively ask for a raise; you might get one without asking. This principle also applies to regulation; overly pursuing perfection may lead to mistakes.

In practice, we use tools such as regulations, rules, and guidelines to establish a regulatory framework. Hong Kong's regulatory system is already quite mature, having been gradually established since 2018. Compared to the United States, although the crypto market is developing rapidly, regulation still takes time. The primary goal of legislation in the crypto space is to combat unlicensed activities rather than overly relying on static legal texts.

We also ensure regulatory flexibility through public consultations, notifications, and dialogue with the market. The market generally prefers principled regulation, but once implemented, it often demands clear specific rules. My view is that in the early stages, rule-based regulation is suitable, while as the market matures, it should gradually shift towards more flexible principled regulation, which helps adapt to changes and maintain flexibility. Hong Kong is moving towards a higher quality market, and we should develop in this direction.

How the Banking Sector Chooses Between Principles and Rules

Gary: As a former banker and now a regulator, do you see differences in thinking between the banking sector and the regulatory sector in policy-making for digital assets? For example, how do you choose between principles and rules?

Eric: I am not just a banker; I actually started out studying piano. Later, I managed the stock market at the stock exchange, then worked in private equity, and only then moved into banking before becoming a regulator. My career has undergone many challenging transformations.

But now, as a regulator, this is the easiest phase of my career. However, I have always maintained a consistent philosophy: whatever you do, it must be planned, constructive, and growth-oriented. You cannot skip these steps. For example, you cannot just think about playing the "Moonlight Sonata" tomorrow; even Mozart couldn't do that. You must have a plan and learn to reach that level.

The same applies to the digital asset space. Many of our achievements are thanks to the market and colleagues at the SFC, as we began this journey in 2018. While we are not the most aggressive regulators in the crypto industry, we have remained steadfast. We successfully avoided some major disasters in the cryptocurrency industry, such as the collapse of FTX.

Accelerating Innovation and Implementing "Fast Failure" in Hong Kong

Gary: I also appreciate your self-assessment approach. We conduct a comprehensive review every three months, with the last one being three weeks ago, and we are still recovering from the trauma. However, the two plans you mentioned regarding accelerating innovation and licensing particularly caught my attention. Everyone hopes that Hong Kong can innovate faster, remain flexible, and accelerate the commercialization process. The "iterative thinking" in the crypto industry is also highly regarded, and we hope to innovate through continuous trial and error.

My question is, in Hong Kong, we have already seen similar "fast failures," especially in licensing. If a project does not meet the requirements, we do not give it a chance to enter the market; this is an early form of "fast failure." Another way is to allow projects to enter the market, but if they fail to comply, they will naturally exit. So, do you think we should see more of the second type of "fast failure" in Hong Kong? That is, allowing projects to enter the market more quickly, and if they cannot succeed, they will naturally exit?

Eric: This should be part of the acceleration plan; we hope to take a "small steps, quick wins" approach. For me personally, I am not the executive director of digital assets; I am the executive director of intermediaries, so my scope of work is broader. While I spend a significant amount of time in the digital asset space, I also need to pay attention to the other 95% of the market, which also requires my attention.

Regulating digital assets indeed requires us to balance risk and reward. In business, if you have more funds, you can try more innovations. But if funds are limited, you need to be more cautious.

Gary: So, does trial and error become more challenging in the policy-making process for digital assets?

Eric: In fact, this is not difficult for me. Because I believe the key to trial and error is not to pursue perfection; practicality is more important than perfection. My team has been working very hard, and we are continuously improving, making step-by-step progress.

Hong Kong's Commitment to Finding Balance Between Consistency and Flexibility

Gary: So, what do you hope the cryptocurrency market in Hong Kong can achieve? What kind of products do you want to see? If measured by months, when should we expect to see these innovations?

Eric: Doing homework is key! I have always insisted on this, although I am a contradictory person, having my own persistence while also being flexible within certain limits. Looking at our goals, we already have clear product plans. We hope to see developments in derivatives, modular financing, staking, and lending. In fact, just yesterday, I discussed capital rules for virtual asset derivatives trading with my colleagues, and the work is progressing very intensively. So what you should pay attention to is that I have clearly articulated these goals.

Gary: What about the timeline? How long until we see these innovative products launched in the market?

Eric: It depends on the speed of market development. While I have a strong willingness to drive these changes, we must realistically acknowledge that the Hong Kong market needs time to adapt to these changes. Our current regulatory framework is principle-based, so the maturity and professionalism of market participants are crucial. We can push policies, but the market also needs to develop in sync with us. In some respects, we do feel that we are moving faster than the market. Therefore, our work needs to closely align with the market to help it grow further.

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