In late May 2026, a seemingly ordinary "Secretary's Essay" was repeatedly forwarded within Hong Kong's financial circles. In the article, Paul Chan spoke in an unusually high-profile tone, directly stating that Hong Kong's principles, practices, and experiences in digital asset development and regulation "have advanced earlier and are ahead of Europe." Multiple media outlets immediately took this statement as a headline. While equating blockchain and artificial intelligence as the inevitable directions for future financial development, emphasizing the necessity to "make good use" of these technologies, he also pointedly reminded: criminals and terrorists are attempting to exploit regulatory differences between various jurisdictions for money laundering and fundraising, and the inherent liquidity of cross-border digital assets is amplifying this regulatory gap. After Europe implemented MiCA and Hong Kong established the VASP licensing system, this proclamation of "we are ahead of Europe" is not just self-encouragement but more like throwing down a gauntlet to the outside world—what exactly does his "leading" refer to, whether it is progressing in time, regulatory intensity, or risk orientation, and how this new round of regulatory competition will reshape the global digital asset order is the core question this article seeks to explore.

From VASP License to MiCA: Collision of Two Regulatory Time Zones

If regulation is likened to opening a sluice to control flow, Hong Kong and Europe are evidently two different clocks. In 2023, Hong Kong officially incorporated Virtual Asset Service Providers (VASP) into its licensing system, first establishing the threshold of "who can enter and how." Admission thresholds, ongoing compliance obligations, and regulatory responsibilities were all put on the table, with investor protection as the main axis, complemented by strict requirements for anti-money laundering and counter-terrorism financing. With this system, Hong Kong quickly gained recognition as one of the regions in Asia that established a relatively comprehensive digital asset regulatory framework, forming a practical stance of "first landing, then fine-tuning."

In the same year, the European Union passed the Markets in Crypto-Assets Regulation (MiCA), but chose a different path: phased implementation starting in 2024, lengthening the timeline and broadening the scope. MiCA is positioned as the world's first comprehensive regulatory framework for crypto assets, not only targeting service providers but also including various participants such as crypto asset issuers, while equally emphasizing investor protection, market integrity, and preventing systemic risk. Consequently, when Hong Kong's VASP licenses began operating in the local market, Europe's MiCA was still rolling out in segments, giving Paul Chan a time advantage to claim "earlier than Europe." In terms of outcomes, both regions focused on the same batch of risk keywords but placed their regulatory focus on different points: Hong Kong leaned more towards tightening the service side first, while Europe attempted to delineate a complete boundary for assets, entities, and market order in one go. It is within this disparity of rhythm and focus that future regulatory arbitrage and cross-border collaboration have been preemptively written into the script of this rules competition.

Technology Accelerator or Black Box? The Double-Edged Sword of Blockchain and AI

Positioned at the "earlier than Europe" timing, Paul Chan did not dwell on licenses and regulatory texts but directed his focus towards the technology itself. In this straightforward "Secretary’s Essay" from late May 2026, he wrote clearly: making good use of blockchain and artificial intelligence is an inevitable trend in future financial development. For a Financial Secretary, this is not a tech slogan but a public bet on the upgrade path of financial infrastructure. Blockchain is seen as a new generation of "base," which can abstract assets from paper and databases into programmable digital certificates, supporting asset tokenization; the same ledger compresses processes that previously took days to reconcile and settle to near real-time, transforming payment and settlement from "running in segments" to "running on the same track," with transaction paths inscribed into immutable records. In the eyes of regulators, this means that once rules are embedded on the chain, compliance obligations can be automatically triggered by programming, and transparency no longer solely relies on retrospective audits and institutional self-discipline, but rather through technology, directly welding the system into the financial pipeline.

Artificial intelligence is expected to "understand" the rapidly accelerating flow of funds in this pipeline. In recent years, global financial institutions have begun using models to replace manual inspections, delegating anti-money laundering monitoring, risk modeling, and transaction behavior recognition to algorithms—who is splitting transactions with unusual frequency, who is entering and exiting with small amounts at high frequency across borders, past patterns which required analysts to meticulously compare line by line can now be marked in real time within the data. For regulators in Hong Kong and Europe, in scenarios where cross-border digital assets and traditional finance intersect, merely expanding manpower can no longer cover all risk avenues. Betting on blockchain and AI is, in a sense, to avoid being left behind in this technological race by new modes of fund flows. However, Paul Chan did not mask the other side: the same set of tools can also be used by people to construct layered wallets and addresses or to obscure transaction relationships through complex pathways, artificially raising the cost of regulatory identification. Therefore, these technologies he referred to as "inevitable trends" are also potential black boxes; what determines their direction is not just the algorithms themselves but whether the rules can take the initiative before the technology accelerates.

Gray Channels for Regulatory Arbitrage: How Criminals Exploit Differences

In Paul Chan's warning, "regulatory arbitrage" is not just a technical term but a concrete path choice: when a fund can cross borders without obstruction on the chain, it instinctively flows towards the regulatory boundaries that are the weakest and most overdue in enforcement. Organized crime and terrorist financing groups do not need to dissect all rules; they only need to find gaps between rules—one jurisdiction has just legislated and is not fully enforcing, another has a framework that does not cover a certain type of service, and a third lacks uniform standards for licensing—and it is enough to split, circumvent, and regroup funds. The cross-border and de-intermediation characteristics of digital assets magnify this instinct of "choosing the lowest threshold" on a global scale, making regulatory arbitrage shift from a "technique" in traditional finance into a replicable gray channel.

Between Hong Kong and Europe, differences in timelines and details are the material for this arbitrage. Hong Kong established a framework through the VASP licensing system in 2023, while the EU passed MiCA in the same year, rolling it out in phases starting in 2024. Both systems emphasize anti-money laundering, anti-terrorist financing, and investor protection, yet their coverage, specific thresholds, and implementation rhythms do not fully align. For compliant institutions, this presents two systems that can be benchmarked and cooperated with; for criminals and terrorists, however, it offers two systems that can be compared and selected as "regulatory interfaces"—when scrutiny in a jurisdiction begins to tighten, funds move to another market still in a phase of adjustment. Despite the existence of international standards such as the Financial Action Task Force, the disparity in execution speed and strictness remains objectively present, and regardless of how fast or "leading" a single region moves, it cannot independently close this gray channel opened by differences.

Hong Kong's Bet on Being First: Opportunities and Costs Coexist

With the premise that regulatory differences can be finely utilized by capital, Hong Kong chose not to wait and see but to bet on "being first." In recent years, the authorities have repeatedly integrated the development of the local digital asset ecosystem into the narrative of being an "international financial center": to retain global capital and institutions, one cannot afford to be absent in the new round of competition for financial infrastructure. The VASP licensing system implemented in 2023 represents a shift from almost a blank slate to establishing a comprehensive set of rules, meaning that any institution wishing to operate relevant business in Hong Kong must compete under the same set of licenses, admission thresholds, and compliance obligations. For decision-makers, this is not only about establishing a brand of "clear regulation and reliable rules" to attract institutions willing to operate compliantly but also an attempt to validate through a parallel timeline with Europe’s MiCA that Hong Kong can provide a viable, if not superior, alternative. Paul Chan's declaration in the "Secretary's Essay" that Hong Kong is ahead of Europe in principles, practices, and experience is essentially a signal to the market: the rules here are already established, and those willing to stay can conduct business according to these rules.

However, the bet on "being first" has never been a one-way gain. The earlier and more comprehensive the regulatory framework, the higher the predictability of the system, which makes it easier to inspire investor confidence, and the international image of regulators can also more easily be shaped as "responsible and professional." At the same time, the costs have also been front-loaded onto the balance sheets of all participants—compliance teams need to expand earlier, system renovations must be invested in sooner, and some institutions accustomed to conducting business on the edges might simply choose to avoid this rigorously controlled area, turning toward jurisdictions where rules are still uncertain. Hong Kong hopes to exchange a pioneering regulatory framework for long-term market dividends but must also accept this reality: as the rules in Europe and elsewhere gradually take shape, comparisons will come under scrutiny; whether this city is trading early planning for "high-quality flow" or whether overly rapid and stringent measures lead to the outflow of certain businesses will ultimately be answered through rounds of market decisions.

From Benchmarking to Co-governance: The Next Steps for Hong Kong and Europe

When Hong Kong benchmarks the VASP licensing system against Europe’s MiCA and puts "who is ahead" on the table, it is effectively a competition of an entire set of system design and execution capabilities rather than the sequence of individual clauses. The EU will begin phased implementation of MiCA in 2024, while Hong Kong first established its local framework in 2023. Both parties seek consensus on anti-money laundering, anti-terrorism financing, and investor protection, while also observing and adjusting towards regulatory boundaries, technological applications, and market openness. On one hand, Paul Chan emphasizes the need for Hong Kong to effectively utilize blockchain and artificial intelligence; on the other, he warns that criminals and terrorists will exploit regulatory differences. This very statement points to a potential collaboration path for the next steps: forming as compatible a "common language" as possible with Europe on specific rules such as cross-border transaction information sharing, suspicious activity monitoring standards, and investor suitability requirements, using a coordinated framework to close the gaps for regulatory arbitrage. For the industry, the trajectory of the story is becoming increasingly clear: in the global regulatory shift from individualistic approaches to framework coordination, the true determinant of the survival of cross-border institutions will no longer be where to exploit loopholes, but rather who can simultaneously comply under multiple jurisdictions, internalizing compliance as a part of their products and risk control, and utilizing technological means to prove their worthiness to remain in this new order.

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