Host: Thank you to the three guests for their wonderful shares. Next, we would like to invite Mr. Kwok Da-kan, a member of the Legislative Council (Technology and Innovation Sector) of the Hong Kong Special Administrative Region, to deliver a keynote speech, sharing the opportunities and challenges Hong Kong faces in building a global digital asset hub.

Let’s welcome Mr. Kwok.

Kwok Da-kan: Hello everyone, I am very pleased to be in Shanghai again today to share the developments in Hong Kong. This morning, when I just got off the plane, I heard Vitalik talk about ideas on technological development, and recently at many blockchain events, discussions have increasingly focused on “AI.” The interaction between AI and blockchain, or how to drive the development of blockchain technology, is undoubtedly significant. From Vitalik’s share, I believe that technology will not regress. The reform of the entire financial market driven by blockchain will only accelerate with the emergence of AI. We all need to contemplate how the financial market and asset market will be transformed under the dual drive of blockchain and AI.

Today, we will discuss some legal directions. For legislators, what is the rationale for legislation? Technology must move forward; legislation will not alter the trajectory of technological development. The objectives of legislation are, first, to prevent people from using technology for malicious purposes; second, to establish standards and rules. This work has never ceased.

Regarding issues related to digital assets, a recent topic of concern is that the US CLARITY Act will not be passed, which many friends are worried about. After the US midterm elections, there is concern about whether many will regress or what developments will occur. What does this indicate? Over the past few years, different regions and countries around the world have been legislating (on the direction of digital asset development). This represents a recognition that the momentum of digital asset development will continue, and it will also impact traditional financial products in the market. How governments legislate to establish credible standards and rules for transactions is crucial for the better development of these products and for broader acceptance.

In the long run, the failure of the US CLARITY "checkpoint" is a better thing for Hong Kong. Our pace has not been stagnant over the past few years; we have promoted better compliance management, allowing for interconnected markets, and made traditional financial markets' applications of blockchain more reliable while mitigating issues concerning safety, transaction speed, transparency, and so forth.

As shown in the diagram, this is the new government's policy report announced last week, along with the first "Five-Year Plan" Hong Kong has established. I have outlined the points related to digital assets mentioned therein. Essentially, technology drives the development of financial technology, advances the regulatory framework/methods for tokenized products, promotes product trials, continues to push Ensemble, connects with central bank digital currencies, and aligns with different countries. Technology also facilitates effective regulation of various financial rules using blockchain, including areas like CrypTech, which focuses on anti-money laundering monitoring. Additionally, a bigger task for Hong Kong is to promote the internationalization of the Renminbi, and how to combine this with different countries to push these products into various markets, which is also mentioned in the policy report.

To reiterate, the process of legislation regarding digital assets in Hong Kong has continued without pause over these past few years. We aim to steadily advance the development of the financial market step by step. Since the early appearance of the "Declaration" until now, nearly four years later, there have been blueprints, amendments to "regulations," licensing schemes for virtual asset platforms, and several roadmaps, as well as the stablecoin law passed last year, with more new legal discussions to come which I will share shortly.

I want to emphasize that this approach in Hong Kong is step by step. We hope to ensure that through the legislative process, with effective regulation, market mechanisms, and transaction methods, everyone can use digital asset development more clearly and safely.

As shown in the diagram, this includes several roadmaps, which are public. Due to time constraints, I will not elaborate, including the "A-S-P-I-Re" scheme issued by the Securities and Futures Commission.

The "Hong Kong Digital Asset Development Policy Declaration 2.0," mentioned last year, includes the "LEAP" scheme regarding regulations, cases, application scenarios, products, and talent, as well as the latest proposed DART strategy from the Monetary Authority for 2030 which also mentions tokenization.

In addition to the aforementioned work, legislation is the direction we are pursuing to provide credibility in this area. I often summarize the three schemes as "PIC." What are they? First, how to issue products, regulatory schemes for products, what is meant for retail investors and what for institutional investors; second, "I" stands for Infrastructure and Intelligence. The foundational infrastructure of the financial market and financial institutions needs to be prepared. Have you invested in your infrastructure? Are there any vulnerabilities or safety issues with these new digital or tokenized products in transactions with traditional products? You need to invest in this infrastructure and identify any blind spots during transactions, which you can achieve through sandbox programs and promoting various products; lastly, "C" stands for connect. Hong Kong, as a digital asset market, needs to connect with different parts of the world, integrating with external products, and establishing internal "rules." This is a long road; we need to walk steadily, ensuring that everyone has credibility.

Doing private equity is simple; I want to issue a product, and with AI today, something can be produced in two days. However, how to regulate what is issued, whether it is reliable, whether the underlying assets are genuine or not—these rules and market mechanisms require time to develop. The discussed schemes actually push forward these three areas.

I will not elaborate on the Stablecoin Regulations. After we issued the Stablecoin Regulations last year, everyone knows that the requirements involve the promotion of safe and reliable stablecoins. There are two licensing agencies here: Standard Chartered, whose two products may come out soon; and Anchor Point (phonetic) mainly integrates with financial products, and their strength lies more in stablecoin products connected with financial applications; it can be seen that HSBC currently proposes to integrate more with retail clients, as HSBC has some products that have significant usage among retail clients in Hong Kong. Both of these stablecoins are testing different application scenarios.

As shown in the diagram, it also mentions that new legislative regulatory schemes will be pushed in the second half of this year or early next year, and there will be a four-in-one regulatory licensing system. We aim to issue a trading service provider license, which includes managing physical trading methods, as well as various custody methods. Manager licenses are expected to be discussed in the legislative council in the second half of the year. After the discussion and passage of this "regulation," the legislative body will likely handle all matters that need to be addressed, including the previously mentioned platforms and stablecoins, along with methods for promoting digital asset transactions and custody requirements, etc. We strive for this "regulation" to be passed in the second half of this year or early next year, clarifying the requirements for licensing in Hong Kong.

The next step is how to promote the development process of the market flywheel. The licensing required has already been outlined, and how to issue licenses and requirements have also been specified, with a clearer direction for product definitions. This requires collaboration in three aspects: requirements emerging from the legislative process, participants' product-related demands, and these three aspects need to communicate and co-prosper to drive the next wave. When new products emerge, everyone will know how to issue them, who can use them, and how to manage them, and which institutions will manage them. After the issuance of these products, the issuers will know where the legal red lines are—what they can do and what they cannot do—thus attracting more issuers to Hong Kong. With more product promotion and participants, the flywheel can then turn.

The next step for local development strategy:

First, stablecoins must be issued soon, and these two licenses for stablecoins must be established. Are there more scenarios? Many have mentioned Tokens and Deposits; currently, Hong Kong's Token bonds are the largest in issuance globally;

Second, products within RWA, what is RWA, how to define assets, and how to manage the underlying assets appear to have more impetus for development.

I just mentioned connecting. Products cannot only be sold to Hong Kong; can they be sold to overseas investors? How can this be connected? There are many legal and regulatory complexities as different countries have different legal requirements; also, public and investor education is essential to prevent non-compliant products from circulating in the market, as investors need to beware of how to manage these situations.

We are also very aware of national regulatory provisions. The "Guidelines for the Regulation of Tokens for Issuing Asset-Backed Securities Overseas in Mainland Assets," Hong Kong strictly adheres to the requirements of mainland laws and regulations and will not overstep these boundaries. However, at the same time, Hong Kong aims to make attempts at certain products through our legislation using the same business, the same risks, and the same regulatory principles. RWA is the only pilot. We will explore how to issue products and how to facilitate trading of different products through RWA abroad. This is something we will also promote going forward.

There are many distinct products here. You can also imagine various RWA products; some can be traded while others, even with digitalization, might not have a market audience. There might be some tests to determine what products can be classified as RWA; we already have some gold assets emerging in Hong Kong. We have clarified that collectibles do not need to be made into RWA; they were originally NFTs, and the regulatory methods for them are becoming clearer, letting everyone know who can do what.

I have shared some recent methods Hong Kong has been promoting. As mentioned before, the developments in digital assets are very clear and consistent with national regulatory requirements, but collaboration in other non-asset areas has not ceased, such as recording trade data through blockchain. The interoperability of these data, such as the recent rollout of Cargox, relates to trade data. We will promote more data and establish interoperability with institutions needing connections within the Greater Bay Area and mainland. Cross-border payment systems, capital platforms, as well as connecting data concerning carbon emissions, carbon indices, etc., through blockchain, are also steps that Hong Kong and the mainland are continually working on, alongside communications on the internationalization of the Renminbi and platforms within Ensemble. We have not slowed down these steps and hope there can be more seamless connectivity through different application scenarios of blockchain with the mainland.

Thank you, everyone!

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