Hong Kong officials unified around the city’s commitment to Web3 development at this year’s FinTech Week, touting the expansion of blockchain, tokenisation and central bank digital currencies more than six weeks after the JPEX scandal shook investor confidence in cryptocurrencies and related assets. “We’ve been asked many times whether JPEX will affect our determination to grow the Web3 market,” Secretary for Financial Services and the Treasury Bureau (FSTB) Christopher Hui said during one of the conference’s opening keynote speeches. “The answer is a clear no.” In addition to Hui, the two-day main conference opened on Thursday with talks from Hong Kong Chief Executive John Lee Ka-chiu, the People’s Bank of China Deputy Governor Zhong Qingsong and Hong Kong Monetary Authority (HKMA) Chief Executive Eddie Yue. With a broad theme of “fintech redefined”, it became clear from the early speakers and myriad crypto companies peppering the show floor that Web3 was once again the highlight of FinTech Week a year after the city announced its intent to become a virtual asset hub. Hong Kong FinTech expo sees support for tokenisation as means to lift efficiency In the aftermath of one of the largest financial frauds in Hong Kong history – with thousands of complaints about the JPEX crypto exchange being linked to HK$1.5 billion (US$192 million) in lost funds – major themes running through FinTech Week focused on tokenisation and cross-border transactions. This marked a shift from last year’s focus on virtual assets, when it appeared that the city was looking to court overseas crypto businesses. Two of three initiatives in Hong Kong to “foster fintech development” that Hui mentioned involve expanding the use of digital yuan and Web3 technologies. The third initiative is a new platform for retail fund distribution from Hong Kong Exchanges and Clearing (HKEX). During the event, the Securities and Futures Commission (SFC) released two circulars outlining requirements for tokenised securities, which refer to traditional investment products that use distributed ledger technology. The documents open up retail access to such products provided they follow specific guidelines, including notifying and discussing business plans with the SFC in advance and smart contract audits. “It’s very encouraging that regulators are still issuing policies related to virtual assets after JPEX,” said Jason Chan, a partner at Howse Williams in Hong Kong. “It shows that the government is still trying to make Hong Kong a virtual asset hub.” Cross-border payments were also a major highlight, with Hui noting that Octopus app users can now buy digital yuan (e-CNY) on the mainland through the app and Bank of China Hong Kong users can top up e-CNY wallets using their bank accounts. The e-CNY has been a key part of plans to bridge mainland and Hong Kong financial systems. The mBridge blockchain project that links the mainland with Hong Kong, Thailand and the United Arab Emirates was a main feature of the Bank of China booth. Beyond just blockchain, Yue mentioned in his speech that Hong Kong’s Faster Payment System (FPS) would be able to be used for payments in Thailand starting on December 4. Several panel discussions were also dedicated to tokenisation as the city’s regulators prepare to allow financial institutions to offer new blockchain-based assets. It is an area where traditional financial institutions are expected to benefit, and some are already looking ahead to the possibilities of new types of assets that have not been seen with traditional securities. “I personally feel that one of the areas where tokenisation will really take off is in a new asset class,” said Geoff Kot, managing director of financial markets at Standard Chartered Bank, during a panel on securities tokenisation. “So rather than taking a very established market class … maybe where the growth is really going to come is in something that is completely new.” One major area of focus for tokenisation has been real estate, which was part of the HKMA’s recently concluded e-HKD trial, in which Ripple and Fubon Bank explored using a digital Hong Kong dollar for granting a home equity line of credit on a blockchain. Amid the excitement for what might be coming, though, was the constant reminder that regulation can be slow-moving and that more is needed. “With the recent example of some bad actors in the market, I think that will always speed up the legislation process and lead to a more healthy introduction of the digital asset market in Hong Kong,” said Legislative Council member Duncan Chiu, who represents the information technology sector. Areas the legislative council should look into include reforming regulations on over-the-counter (OTC) cryptocurrency shops and custodian service operators, Chiu said. Industry players are also calling for more regulations relating to virtual assets, including OTC operations and crypto derivatives, as Hong Kong moves ahead with its Web3 push. Enforcement agencies should regulate OTC services “as soon as possible”, especially those involving virtual asset transactions, such as clearly defining the regulatory authority for OTC or the regulatory unit for third-party payments, according to Paul Tang, chief operating officer at Payment Asia and director of Hong Kong Money Service Operators Association. “Despite the bear market, we are excited about how Hong Kong has not held back from innovating in the crypto space,” said Melvin Deng, CEO at Singapore-based QCP Capital. “We believe setting up strong regulatory frameworks for crypto derivatives would strengthen their position as a derivatives hub in Asia.” Still, there are signs that the market is not poised for an immediate comeback, even with regulatory assurances. Patrick Tsang, chairman of the family office Tsangs Group, said he has been reducing his Web3 investments, and other family offices have done the same. “We’ve definitely slowed down a bit in Web3, crypto and blockchain. I’m still long on the space, but right now it’s not our main focus,” Tsang said. “We invested in a number of specialist blockchain funds, all not doing well … I’m waiting for [next year’s] bitcoin halving [in the rate of new tokens] to happen, waiting for markets to return.”