Author: Zhang Feng

On December 3, 2025, the CEO of the Hong Kong Securities and Futures Commission, Liang Fengyi, delivered a keynote speech at the Fourth ASEAN and China-Japan-Korea Economic Cooperation and Financial Stability Forum. Centered on "Reconstructing Finance - Seeking Progress Amidst Risks in a Changing Era," she systematically elaborated on the profound transformations facing the current financial market, the accompanying risks, and the strategies that regulatory bodies and market participants should adopt in response.

In the context of a global digital wave, geopolitical restructuring, and technology empowering finance, her speech not only set the direction for financial regulation in Hong Kong and Asia but also provided a clear roadmap for the regulated development of emerging fields such as digital assets.

We might as well summarize the "changes" pointed out by Liang Fengyi, outline the hidden risks, summarize the proposed paths for change, and infer the development trends of the digital asset industry, while exploring how the industry can achieve innovation and progress amidst risks.

I. Changing Era: Four Forces Reshaping the Financial Ecosystem

In her speech, Liang Fengyi clearly stated that the financial market is undergoing an "unprecedented baptism," driven by four interwoven forces:

First, the rapid growth of the private equity market. Since the global financial crisis, the implementation of the Basel III Accord has strengthened capital and liquidity regulation for banks, limiting credit supply from the traditional banking system. Private credit has filled this financing gap, becoming an important channel to support innovation and growth in the real economy. The global private asset management scale has nearly doubled in a decade, reaching $14 trillion, with risks spreading from the banking system to non-bank financial institutions and asset holders.

Second, the comprehensive penetration of technology into financial services. Technologies such as artificial intelligence, machine learning, generative AI, and quantum computing are profoundly changing the operational models of financial businesses. They enhance efficiency, reduce costs, and drive innovation, but also bring new risks such as model bias, "hallucination" outputs, data security, and cybersecurity.

Third, the rise of distributed ledger technology (DLT) and digital assets. Blockchain technology has made instant clearing and settlement possible, promoting the transition from T+2 to T+1 and even real-time settlement. Digital assets, especially cryptocurrencies and tokenized products favored by the younger generation, are changing investment behaviors and market structures.

Fourth, the reconstruction of the geopolitical economic landscape and its connection to financial markets. The global supply chain is shifting from integration to regionalization, with trade in the Asia-Pacific region accounting for nearly 60%. ASEAN has become a new area of economic vitality, attracting significant foreign investment. The financial market bridge is being rapidly reconstructed, with Hong Kong, as an international financial hub, actively reconnecting with regional financial centers, supply chain finance, and capital markets.

These four forces are collectively increasing the complexity, interconnectedness, and uncertainty of the financial system, blurring traditional boundaries (such as public vs. private, fiat vs. stablecoin), and both regulation and the market face the challenge of "seeking progress amidst risks."

II. Hidden Risks: Coexistence of Complexity and New Threats

Amidst the changes, Liang Fengyi keenly pointed out multiple risks, which arise from both the evolution of traditional fields and the challenges posed by emerging technologies:

In the private equity market, asset quality is polarizing, with some private credit structures being complex, illiquid, and lacking transparency, making valuation difficult and prone to fraud. Cases like First Brands and Tricolor in the U.S. have sounded the alarm. At the same time, the rising participation of retail investors further spreads risks to the public. The ties between private equity and institutions like banks and insurance companies are becoming increasingly close, forming potential contagion paths for systemic risk.

In terms of technology application, while artificial intelligence enhances efficiency, its "black box" nature makes results difficult to audit, verify, and explain, potentially leading to erroneous trading signals, inappropriate investment advice, and pricing distortions. The "hallucination" risks of generative AI, operational resilience issues from vendor concentration, and the potential for quantum computing to break existing encryption systems all pose threats to financial stability.

In the realm of digital assets and DLT, young investors pursuing high returns, fast-paced, and socialized investments may overlook risks. If stablecoins are not regulated, they could trigger liquidity crises during large-scale redemptions. The digital asset market itself is highly volatile, with frequent occurrences of fraud, manipulation, and cybersecurity incidents, necessitating stronger investor protection.

In the context of geopolitical restructuring, the fragmentation of global liquidity, differences in regulatory standards, and uncertainties brought about by supply chain restructuring all challenge the integration of capital markets and financial stability.

III. Regulatory Change: Balancing Innovation and Stability

In the face of changes and risks, Liang Fengyi proposed a series of paths for regulatory and market collaboration, centered on "flexibility, foresight, and deepening cooperation":

Enhancing the adaptability and foresight of the regulatory framework. The Hong Kong Securities and Futures Commission is comprehensively reviewing its regulatory system, striving to balance "innovation and progress with maintaining stability." For the private equity market, it has strengthened reporting requirements for over-the-counter derivatives data and promoted standardized disclosure to enhance transparency and manage counterparty risks.

Building a technology risk governance system. Licensed institutions are required to establish robust AI governance and risk management frameworks, introducing a "human-in-the-loop" mechanism for high-risk generative AI applications. At the same time, efforts are being made to promote cybersecurity frameworks and quantum security infrastructure to address new technological threats.

Leading regulatory innovation for digital assets. Hong Kong is committed to creating a safe and reliable digital asset platform, constructing a comprehensive regulatory framework. It has already established systems for central exchanges, advisors, and asset management, and is finalizing the last regulatory "puzzle" for trading and custody services. Regulations for stablecoins have come into effect, ensuring proper management and auditing of reserve assets.

Promoting regional cooperation and ecological interconnection. Emphasizing the use of regional institutions like AMRO to strengthen cross-border regulatory communication and reduce discrepancies. In the digital asset field, promoting interbank blockchain interoperability (such as the Ensemble project) to achieve the scaling and instant settlement of tokenized products. Supporting the mutual listing of financial products between Hong Kong and markets in the mainland, Middle East, etc. (such as Saudi stock ETFs) to rebuild regional financial bridges.

Advocating public-private cooperation and market self-discipline. Encouraging the industry to identify key risks and disclosure needs independently, while regulatory bodies provide moderate and flexible normative guidance to avoid "one-size-fits-all" approaches that stifle innovation.

IV. Major Trends in the Digital Asset Industry: Compliance, Institutionalization, and Ecological Development

Based on Liang Fengyi's discourse, we can infer that the future development of the digital asset industry will exhibit the following characteristics:

Regulatory compliance becoming mainstream. Global regulatory bodies are accelerating the construction of legal frameworks for digital assets. Hong Kong's practices demonstrate that regulation does not stifle innovation but provides a safe and trustworthy development environment. Compliance will become a prerequisite for market entry and long-term survival.

Product tokenization moving from pilot to scaling. Tokenized green bonds, money market funds, gold products, etc., have achieved initial success in Hong Kong, with a scale of about $3 billion. In the future, more traditional financial assets (such as bonds, stocks, real estate) will achieve full lifecycle management on the blockchain, enabling instant settlement and rights confirmation.

Stablecoins entering a period of regulated development. With the enactment of Hong Kong's "Stablecoin Law," transparency of reserve assets and regular audits have become standard. Stablecoins will play a greater role in payments, settlements, and DeFi, but liquidity risks must be controlled within the regulatory framework.

Interoperability becoming key to ecological expansion. A single blockchain cannot support large-scale financial applications; cross-chain, cross-institution, and cross-border interoperability protocols and shared infrastructures (such as shared payment layers) will become development priorities. Hong Kong's Ensemble project is a forward-looking attempt in this regard.

Institutional participation continuing to rise. Traditional financial institutions such as banks, asset management companies, and insurance companies are gradually entering the digital asset ecosystem, providing custody, trading, and investment products, driving the market structure from retail-dominated to institutionalized and professionalized.

Asian markets leading innovation. With a young population, high levels of digitization, and a flexible regulatory environment, the ASEAN and China-Japan-Korea regions will become important testing grounds for digital asset applications and innovations. Hong Kong, with its institutional advantages and bridging role, is expected to become a regional digital asset hub.

V. How Can the Digital Asset Industry Innovate and Progress?

Under Liang Fengyi's theme of "seeking progress amidst risks," the digital asset industry must find a dynamic balance between innovation and risk management to achieve sustainable development:

Balancing technological innovation and risk management. The industry should actively explore cutting-edge technologies such as zero-knowledge proofs, privacy computing, and cross-chain technology to enhance efficiency and security. At the same time, an internal risk control system should be established to rigorously oversee smart contract audits, cybersecurity protection, and liquidity management, avoiding systemic risks caused by technological vulnerabilities.

Proactively embracing regulation and participating in rule-making. Enterprises should view regulation as a partner rather than an adversary, actively participating in regulatory sandboxes, pilot projects, and policy consultations to provide market perspectives for institutional design. Through compliance practices, they can establish industry credibility and attract long-term capital.

Deepening real-world application scenarios. Digital assets should not be limited to speculative trading but should delve into real economy sectors such as supply chain finance, trade financing, green finance, and intellectual property securitization. Tokenization can enhance asset liquidity, reduce transaction costs, and increase transparency, creating real value.

Strengthening investor education and protection. To address the issue of insufficient risk awareness among retail investors, the industry should enhance public understanding through clear information disclosure, risk warnings, and investor suitability management. At the same time, exploring investor protection mechanisms such as insurance and compensation funds will enhance market resilience.

Building an open and collaborative ecosystem. Enterprises, financial institutions, technology companies, and regulatory bodies should strengthen cooperation to promote the unification of technical standards, data protocols, and compliance interfaces, reducing interconnection costs. Hong Kong can play a super connector role to facilitate the integration of domestic and international markets.

Cultivating a cross-disciplinary talent pool. The integration of digital assets with finance, law, and computer science necessitates the urgent need for versatile talents who understand both technology and compliance. The industry should collaborate with universities and training institutions to build a talent reserve that supports long-term innovation.

Liang Fengyi's speech painted a roadmap of "seeking progress amidst risks" for the financial market in a changing landscape: it is essential to keenly capture the opportunities brought by technological and market innovations while being acutely aware of the risks involved; to maintain regulatory flexibility and foresight while upholding the bottom line of investor protection and financial stability. For the digital asset industry, this means that on one hand, compliance, institutionalization, and ecological development will become irreversible trends; on the other hand, the industry can only achieve steady and far-reaching progress amidst the waves of change through technological innovation, deepening application scenarios, ecological cooperation, and risk management.

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