Interview with HashKey Senior Consultant: Does China's "Encryption Ban" Affect Hong Kong's Future as an Encryption Center?
Compiled and produced | Baize Research Institute
Compiled and produced | Baize Research Institute
On September 24, ten departments including the People's Bank of China and the Central Cyberspace Affairs Commission jointly issued the "Notice on Preventing the Risk of Virtual Currency Hype", emphasizing the clarification of the essential attributes of virtual currency and related business activities, and the establishment and improvement of a working mechanism to deal with the risk of virtual currency transaction speculation .
At present, crypto exchanges such as Huobi, CoinEx, RRB, BitMart, KuCoin, etc. have issued announcements, and will begin to clear the stock users whose identity is certified as mainland China under the premise of ensuring the security of assets, as the currency of top crypto exchanges. An currently does not support the registration of Chinese users.
How should we understand this "ban"? So what does this mean for Hong Kong, and is crypto activity in Hong Kong legal?
Forkast interviewed Angelina Kwan, a senior advisor to the board of directors of Hashkey Group and former regulator of the Hong Kong Securities and Futures Commission. The following is an edited transcript of the conversation.
How did you react to China's "ban"? Does this surprise you?
The move was completely expected. During this period of time, China's attitude towards the digital asset industry has been relatively clear. For example, encryption mining was banned in May. Knowing this framework, the HashKey Group has continued to focus its activities on Hong Kong, Singapore, Japan and other jurisdictions that have established regulatory guidelines for digital assets.
What does this policy mean, and what are the larger implications?
The PBOC has the clout, financial resources and power to enforce the rules. This is because it is responsible for the implementation of monetary policy and the supervision of financial institutions in China, as determined by the People's Bank of China Law and the Commercial Bank Law.
The larger impact follows. First, China carefully manages its monetary base, tracking payments and investments in the mainland to ensure its payments, funds and transfers are properly managed. Second, China is concerned about the volatility of digital assets. Since social stability is of paramount importance, the government wants to use this opportunity to protect investors and society at large. The electricity usage and ecological impact of Bitcoin mining is also a reason, as China is trying to save energy in the current situation.
All of these factors may have contributed to the publication of this policy at this time. Payment systems, governments and law enforcement will now be more involved in enforcing the rules.
How does this affect crypto exchanges more broadly, even outside of China?
For many digital asset exchanges operating globally, they are aware of the laws enacted in China. These digital asset exchanges have revised their procedures, and you will notice that two exchanges operating in China have announced further strengthening of the management of mainland users.
Looking at it from another perspective, you were a long-term regulator before joining the blockchain industry. What do you think is the larger intention of the People’s Bank of China’s announcement?
I can’t speculate on the Chinese government’s intentions with the regulatory announcement, but this change will avoid confusion with China’s future mass rollout of a CBDC (Digital Renminbi); also help with the country’s climate goals of being carbon neutral by 2060; It can also prevent the cross-border transfer of illegal assets and protect the Chinese investing public.
How much does China's regulatory activity affect the future direction of Hong Kong?
Our view is that in the future, Hong Kong will continue to maintain the autonomy to manage financial and administrative affairs endowed by the Basic Law. As one of China's major economic regions and a global financial center, Hong Kong will continue to provide an interface for China's blockchain technology to explore greater uses and customers. China remains one of the most dynamic markets in the world when it comes to blockchain application development.
Just as we’ve seen many traditional financial industries leave partly because of fears that regulation from the mainland will come to Hong Kong SAR, do you expect the same to happen in the crypto industry?
As the digital asset industry is increasingly regulated, Hong Kong is becoming increasingly attractive as a world financial center that provides a level playing field for industry players. We don’t have a crystal ball (can’t see the future), but we don’t see the day when digital asset activities will be blocked in Hong Kong. Waves of regulation are more likely to drive higher levels of transparency, compliance, and security. We have relocated HashKey's global headquarters to Hong Kong's central financial district, and we are very committed to having a presence in Hong Kong.
SBF, the CEO of top crypto derivatives exchange FTX, previously announced that they were moving their headquarters from Hong Kong to the Bahamas. What does this mean for Hong Kong as a leader in the crypto industry in Asia and globally?
Sorry to hear that FTX will be making a "new home" in the Bahamas. Sam Bankman-Fried and his colleagues have been part of the digital asset industry structures that have made Hong Kong the vibrant digital asset hub it is today. He has brought a lot of innovation to the digital asset industry and we would love for him to continue his business in Hong Kong.
While there are only 30 digital asset firms in Hong Kong, this number will continue to grow as new companies and startups flourish.
Hong Kong has always been regarded as a financial center, and there are many fintech startups here, including encryption companies. Even if the future of decentralized fintech is outlawed in China, do you think Hong Kong can maintain its status as a global fintech hub?
At HashKey Group, we have full confidence in Hong Kong and can imagine a rich future for Hong Kong as a global digital asset hub. We think Hong Kong is an amazing financial center and has been a well-known destination for fintech startups and digital asset companies. Hong Kong will continue to enjoy the status of an international financial center and provide digital asset financial services.
However, we cannot sit back and rest on our laurels. We need to continuously improve and develop our human resources, systems, infrastructure and talents to attract the best talents to Hong Kong. Hong Kong is constantly being pushed aside by competitors, but it has always stayed ahead due to its 'doable' attitude, clear regulations and rules, and simple tax system.
Our biggest competitor in Asia - Singapore, and other financial centers from the Bahamas, Bermuda, British Virgin Islands and other countries around the world, have been stepping up their efforts to attract these high-net-worth investors, not only digital asset companies, but also family office. Therefore, Hong Kong needs to redouble its efforts to retain and develop human resources.
