A Comprehensive Overview: Systematic Review of Hong Kong's Virtual Asset Regulatory Policy Framework

In recent years, virtual assets have rapidly developed globally, posing challenges to traditional financial systems and regulatory frameworks. The high volatility and high leverage characteristics of virtual assets present numerous difficulties for regulatory authorities and trading platforms, such as cross-border capital flow regulation, customer identity verification, and systemic financial risk prevention. These issues indicate that the regulation of virtual assets requires multi-party collaboration to address.

As the third largest financial center in the world, Hong Kong plays an important role in the regulation of virtual assets. Hong Kong needs to promote the development of the global virtual asset market while meeting the central government's requirements for financial stability, seeking a balance between the international capital market and domestic financial security. At the same time, Hong Kong is also an important window for China to explore emerging financial markets. Therefore, Hong Kong's regulatory path for virtual assets is bound to be complex, requiring continuous reconciliation between globalization and localization, as well as innovation and prudence.

2017-2021: From Risk Warning to Institutional Prototype

This stage is the "initial phase" of virtual asset regulation in Hong Kong, primarily focusing on risk warnings while gradually introducing pilot regulatory elements. The regulatory attitude is transitioning from cautious observation to orderly regulation.

• In September 2017, the Hong Kong Securities and Futures Commission (SFC) issued a statement indicating that certain ICOs may constitute "securities" and are subject to regulation.

• In December 2017, the SFC required financial institutions to ensure that cryptocurrency-related products comply with existing financial regulations.

• In November 2018, the SFC proposed to include compliant virtual asset trading platforms in a regulatory sandbox.

• In March 2019, the SFC defined STOs and stipulated the responsibilities of intermediaries.

• In November 2019, the SFC proposed a licensing system for virtual asset trading platforms.

• In November 2020, the Financial Services and the Treasury Bureau launched a consultation on the introduction of a VASP licensing system.

• In May 2021, the Treasury Department officially confirmed the introduction of the VASP licensing system.

At this stage, Hong Kong is gradually shifting from highlighting risks to specific behavioral norms, beginning to define the responsibilities of market participants. Regulatory bodies recognize that virtual assets will become an important component of the financial market, and their attitude is shifting towards positive management. However, the principle of "voluntary participation" still prevails, with the introduction of a preliminary licensing mechanism.

It is worth noting that the "regulatory sandbox" mechanism is applied to the regulation of virtual asset trading platforms. The sandbox allows emerging financial technologies to be tested in a specific environment without having to fully meet existing regulatory requirements. This mechanism helps regulators and the market explore together, being inclusive and practically meaningful.

2022: A Critical Juncture for Policy Transformation

The year 2022 became a watershed for the regulatory policy of virtual assets in Hong Kong. On October 31, 2022, the Financial Services and the Treasury Bureau issued a "Policy Declaration on the Development of Virtual Assets in Hong Kong," clearly stating for the first time the intention to "actively promote" the development of the virtual asset ecosystem. The declaration not only expressed the implementation of a VASP licensing system but also proposed support for emerging scenarios such as tokenization, green bonds, and NFTs, marking a shift in regulatory thinking from "risk-oriented" to "opportunity-oriented."

There are two main drivers behind this shift:

1. The international competition is intensifying, and Hong Kong needs to maintain its status as a financial center. Major global financial centers are actively developing virtual assets, and Hong Kong urgently needs to adjust its policies to compete for industry resources.

2. The development of virtual assets has generated multiple demands, with Hong Kong playing a key connecting role. Hong Kong needs a breakthrough for new financial industries; the mainland hopes to have a compliant "testbed" for exploring the digital economy; practitioners hope to find a compliant landing place; trading platforms are eager to gain institutional protection and legitimacy.

This transformation is not only related to innovative financial markets but also a proactive strategic choice for Hong Kong to maintain its status as a financial center.

2023 - Present: Regulatory policies are rapidly iterating, deepening, and transforming.

Starting from 2023, the regulation of virtual assets in Hong Kong officially enters the "practical implementation" phase. A complete and mandatory legal and licensing system gradually replaces the experimental model, with policies evolving from "declaration" to "execution."

• In February 2023, the Hong Kong SAR government issued its first tokenized green bond.

• In June 2023, the SFC implemented the "Guidelines for Virtual Asset Trading Platforms" and initiated the VASP licensing system.

• In June 2023, the "Regulations on Anti-Money Laundering and Combating the Financing of Terrorism (Amendment)" came into effect, and VATP must operate with a license.

• In August 2023, the first licensed exchange opened to retail investors.

• In November 2023, the SFC issued a circular regarding activities related to tokenized securities.

• In December 2023, the Monetary Authority and the SFC jointly issued a circular on virtual asset-related activities, allowing the sale of virtual asset ETFs.

• In January 2024, the first issuance of tokenized securities applicable to Hong Kong law.

• In March 2024, the Monetary Authority launched the "Ensemble Project" to explore the integration of tokenized assets with wCBDC.

• In July 2024, the Monetary Authority launched a regulatory sandbox program for stablecoins.

• In February 2025, the Financial Secretary announced the release of the second "Virtual Asset Policy Declaration."

• In February 2025, the first tokenized fund aimed at retail investors was approved.

• In March 2025, the number of licensed exchanges increased to 10, and the SFC released the "A-S-P-I-Re" regulatory roadmap.

Hong Kong's regulation of virtual assets adopts a "layered regulatory" strategy based on the existing legal framework, providing "patch-like" regulation for digital assets through the issuance of guidelines or circulars. This approach is efficient, adaptable, and aligns with Hong Kong's positioning as an international financial center.

Hong Kong tends to treat virtual assets as an extension of financial assets, integrating them into a familiar regulatory framework. This not only reduces regulatory coordination costs but also builds a bridge between financial institutions and emerging technology companies, promoting the integration of institutional transformation and industrial development.