Interview and editing: Jaleel, BlockBeats

Compiled by: Sharon, BlockBeats

On January 14, 2013, Leung Chun-ying, the then third Chief Executive of the Hong Kong Special Administrative Region, announced the establishment of the Financial Services Development Council (hereinafter referred to as "FSDC") after attending the Asian Financial Forum. Since its inception, the FSDC has been in existence for 10 years.

As a financial think tank and high-level cross-border consulting agency of the Hong Kong Special Administrative Region government, the Hong Kong Monetary Authority's research scope includes environment, society and governance, financial technology, connecting opportunities in the Mainland, asset and wealth management, and capital formation. By exploring development opportunities in Hong Kong and overseas, promoting the development of Hong Kong's financial industry, Hong Kong has been enhancing and maintaining its status as an international financial center.

In recent years, with the development of the Web3.0 ecosystem, the Hong Kong SAR government has continued to increase its efforts to attract more financial technology and virtual asset industry professionals to Hong Kong. The research scope of the Financial Services and the Treasury Bureau has also gradually expanded to include many Web3.0 related topics.

In July 2023, the Financial Services Development Council (FSDC) stated in its 2022/23 Annual Report that Hong Kong has favorable conditions to play a leading role in the global development of Web3.0. The regulatory environment in Hong Kong is conducive to institutional and retail investors participating in the cryptocurrency industry and trading services. Hong Kong is positioning itself as a "global leader in developing virtual assets and complementary technologies". The report can be found at https://fsdc.org.hk/zh/media/financial-services-development-council-annual-report-2022-23.

Annual Report of the Golden Hair Bureau 2022/23

The annual report also states that Web3.0 is a new era of the Internet, integrating cryptocurrencies, non-fungible tokens, and metaverse, and providing a series of new job opportunities for young professionals.

During the "EDGE Summit" Hong Kong conference held at the end of September, Dr. Dong Yiyue, Director of the Golden Hair Bureau and Policy Research Director, stated: "As an international financial center, Hong Kong needs to retain blockchain technology and related talents in order to serve the financial industry. This requires the creation of appropriate regulations and business environment to attract talents and companies to stay in Hong Kong. In addition, blockchain technology also has applications in the field of anti-money laundering. Blockchain technology can improve transaction traceability and help prevent money laundering activities. Hong Kong's law enforcement agencies, including the police and customs, are actively participating in international cooperation to share best practices and experiences."

In the past decade, the Golden Hair Bureau has released 59 reports covering various fields such as regulation, marketing, and policy recommendations," said Dong Yiyue. In addition to policy research, the Golden Hair Bureau has also been involved in marketing and talent training. Among them, the application of blockchain technology is a key area that the Golden Hair Bureau believes is relevant to everyone. The application of blockchain technology is not only related to cryptocurrencies, but its potential can also help promote the development of Hong Kong's financial services industry.

In addition, Dong Yiyue also shared his views on the application scenarios and development prospects of Web3.0 and the blockchain industry. He stated that the Hong Kong Securities and Futures Commission introduced a regulatory framework for virtual asset trading platforms in 2019, and the Special Administrative Region government completed public consultation on legislative proposals to amend the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615) in May 2021 and summarized the next steps. At that time, many people were concerned about whether Hong Kong should continue to promote cryptocurrency-related affairs, and some virtual asset service providers and industry insiders chose to leave Hong Kong due to different incentive policies introduced in overseas regions to attract the virtual asset service industry to develop locally. As a high-level and cross-disciplinary consulting agency, KPMG has held multiple closed-door meetings with virtual asset service providers, relevant stakeholders, and regulatory agencies since 2021 to understand the key issues and challenges facing the industry, and has provided feedback to the Hong Kong SAR government and relevant regulatory agencies on industry opinions to promote the consultation and development of virtual asset regulatory systems in Hong Kong.  

After the Hong Kong SAR government released its policy statement on the development of virtual assets in Hong Kong in October last year, and the new regulatory regime for virtual assets launched by the Hong Kong Securities and Futures Commission, as of August 2023, more than 180 companies related to Web3.0 have settled in Cyberport. Hong Kong has become an important stronghold for financial and technological innovation, and the Hong Kong Monetary Authority has played a key role in promoting policy implementation, connecting internally and externally, and facilitating communication.

 What is the development and future of Hong Kong's blockchain and cryptocurrency industry? What kind of talent does Hong Kong need in this field? BlockBeats interviewed Dr. Dong Yiyue, Director of the Financial Services Development Council and Head of Policy Research, to discuss these topics.

Dr. Dong Yiyue shared his insights at the "EDGE Summit" in Hong Kong

香港留得住人才、财富和机构

translates to

Hong Kong Retains Talents, Wealth and Institutions

Before joining the Golden Hair Bureau, Dr. Dong Yiyue was the Director of Capital Market Policy at the Chartered Financial Analysts Association, responsible for research on capital market structure in the Asia-Pacific region (including corporate governance, regulatory environment, etc.). He also served as a Senior Economist at the Hong Kong General Chamber of Commerce, responsible for research on macroeconomics, labor market, international trade policies. In addition, Dr. Dong Yiyue has also worked as an economist and researcher in banks, trade credit insurance companies, and think tanks.

Dr. Dong Yiyue holds a Ph.D. degree from Northeastern University in Boston, USA. He is also a senior registered accountant in Australia and has obtained a master's degree in economics from the University of Hong Kong and a bachelor's degree from the University of Wisconsin-Madison in the United States.

BlockBeats: Please introduce yourself and your work with the Financial Development Bureau.

Dong Yiyue: I have been with the Hong Kong Financial Development Bureau (hereinafter referred to as "Gold Bureau") for about 4 and a half years, but this organization has a history of 10 years. As a high-level and cross-border consulting organization, the Gold Bureau is neither a government department nor a regulatory agency. Our job is to develop strategies and measures to expand the Hong Kong financial market and enhance its competitiveness as an international financial center, and to provide advice to the government. So when Leung Chun-ying established the Gold Bureau ten years ago, we had three main areas of work, namely policy research, market promotion, and talent training.

In terms of policy research, we conduct research and industry surveys on the development of different financial sectors and the key issues and challenges faced by the industry, and formulate recommendations for reference by the government and regulatory agencies such as the China Securities Regulatory Commission, the Financial Management Bureau, and the China Insurance Regulatory Commission. At the same time, in the field of market promotion, we mainly promote the advantages of Hong Kong's financial services industry and Hong Kong as an international financial center in mainland China and overseas.

Also, talent training is very important for us in the encryption industry. Our work is closely related to the industry and young talents, which helps us understand the market, stakeholders in the education sector, and students' outlook on human resources. This enables us to develop suggestions to narrow the gap in work-related concepts among all parties, and to enhance the core competitiveness and knowledge of practitioners.

We focus on talent training in two aspects. On the one hand, we start with policy recommendations. If we say that there are deficiencies or failure to keep up with the times in talent policies on the Hong Kong side, we will propose countermeasures through policy research and suggestions from the government, industry, or education sector stakeholders. On the other hand, we organize a series of talent development activities to establish a platform for industry friends to share industry information with university students and young professionals, and provide opportunities for direct communication and exchange.

BlockBeats: You have previously stated that virtual assets can bring opportunities for financial technology development to Hong Kong. Can you talk about the advantages and opportunities for Hong Kong in the field of virtual assets? What competitive advantages does Hong Kong have compared to other regions such as Singapore and Dubai? How can Hong Kong leverage its unique strengths?

Dong Yiyue: The reputation of Hong Kong as an international financial center cannot be established overnight. If we compare the development of virtual assets with some emerging financial regions, we believe that Hong Kong has advantages in retaining talents, wealth, and institutions.

Take some places in the Middle East as an example. They may be relatively wealthy and focus on promoting economic development in multiple fields. However, when it comes to regulatory agencies or regulatory compliance, they each have their own advantages compared to Hong Kong. In comparison, Hong Kong's predictability is stronger, making industry professionals and investors feel more secure. Our policies and regulations will take investor protection as one of the starting points, usually being strict in the initial stage, but after research and observation, they will be appropriately and effectively adjusted and relaxed. The Securities and Futures Commission formulates regulatory rules for virtual asset trading platforms based on the principle of "same business, same risk, same rules". If you are engaged in the same activity, you must comply with the same regulatory rules. Therefore, whether you are a Virtual Asset Service Provider or a Virtual Asset Trading Platform, you must comply with regulations.

In 2021, there were reports that nearly 200 institutions went to another market to apply for compliance licenses. At that time, the expectation was that as long as they operated on that side before a certain point in time, they could obtain the license. However, only a few institutions obtained the license, and the vast majority of projects ended their operations because they did not obtain the license.

Why is Hong Kong now able to attract so many participants in the Web3.0 or blockchain industry? Because we have predictability. We have studied the regulations and how to regulate them, and then gradually relaxed our rules. For example, we have developed from only allowing professional investors to participate in some transactions to now allowing retail investors to participate.

As for financial technology, we cannot simply treat it as a new industry, because their main service providers and buyers are some regulated financial service companies. On this side of Hong Kong, there are a large number of financial institutions, such as more than 160 licensed banks and more than 160 authorized insurance companies, which account for a large part of the overall financial services industry in Hong Kong. Another advantage we have is that Hong Kong, as an international financial center, not only has many banks and insurance companies, but also has thousands of asset management companies, which are also the main service targets of financial technology companies.

Regulatory and market two-way communication is very important

Innovation is important, but regulation cannot be ignored. Innovation without regulation is like a wild horse running loose, which may bring unpredictable negative effects to the industry. From the FTX scandal to the collapse and attacks of multiple projects in the blockchain and cryptocurrency industry, it has been proven that the healthy development of the industry requires greater collaboration. However, this collaboration is not one-sided, but requires "two-way efforts". Market participants need to actively cooperate with regulatory agencies to promote project development, and regulatory agencies also need to proactively examine industry trends.

Dr. Qu Jinglin, the Executive Director of the Gold Bureau, also stated in an interview that "the bankruptcy of the cryptocurrency exchange FTX once caused panic in the industry. The regulatory framework introduced by the Hong Kong SAR government is aimed at long-term development. Regulation is very important for the long-term development of the market, and it will provide a clear and compliant framework for the entire market to develop."

BlockBeats: Recently, the Hong Kong cryptocurrency trading platform JPEX has caused a huge controversy because some depositors are unable to withdraw their deposits. Can you share your thoughts on this matter?

Dong Yiyue: I believe this matter is due to a transitional period. The China Securities Regulatory Commission has implemented a new licensing system for virtual asset trading platforms on June 1st of this year. If you had already obtained a license before June 1st, there would be no problem. However, the development of the JPEX incident is clear - it is a fraudulent trading platform, which is completely illegal. Therefore, law enforcement agencies are currently arresting some illegal individuals.

This incident is very similar to FTX's explosion, which was caused by not separating its own assets from those of its customers. Therefore, Hong Kong must have a set of regulatory policies to regulate cryptocurrency trading platforms, safeguard the interests of investors, and maintain the integrity and stability of the market. In this regard, I know that departments such as the Hong Kong Police, Hong Kong Customs, and the Independent Commission Against Corruption have in-depth analysis of relevant issues, so I believe that Hong Kong has high transparency and predictability in regulatory settings, investor protection, and law enforcement actions. I also believe that this is a distinct advantage of our market.

BlockBeats: How does the Golden Hair Bureau view and plan to handle the JPEX incident from a policy research perspective? How can we prevent such incidents from happening again? However, some people are concerned that excessive regulation will hinder technological innovation. What is your opinion on this?

Dong Yiyue: We need to reduce uncertain factors, so now the China Securities Regulatory Commission has listed the names of platforms that have applied for licenses, and I think this approach is very effective. During this transition period, the most important thing for us is to reduce or eliminate the so-called transaction cost, which is a very important process.

Secondly, in addition to listing the names, the China Securities Regulatory Commission has been working hard to approve these virtual asset trading platforms as soon as possible, to see if they are truly serving investors. During the entire transition period, I believe effective communication is very important, and our regulatory officials in Hong Kong are all talented individuals, and I believe they will be able to promote positive interactions.

In fact, virtual asset trading should be very transparent. Virtual asset trading platforms need to provide relevant information about transactions, such as how customers' tokens or virtual assets are stored on the platform, to ensure accountability and transparency of the trading platform.

BlockBeats: What are the considerations for the Golden Head Office in researching and formulating policies related to blockchain? Are there any policies or regulations being promoted in the area of blockchain development?

Dong Yiyue: We are conducting a research report on how to unleash the potential of blockchain to promote the development of Hong Kong's financial services industry, and we hope to launch it this quarter. Since 2021, we have been discussing this issue with the industry, government, and regulators - whether Hong Kong should become the center of the blockchain industry. The answer later became very clear - we need this technology to stay in Hong Kong and hope that it can help us serve the country and promote the development of the global financial industry.

In order to develop blockchain technology, we must have corresponding talents. In Hong Kong, we need to have enterprises, industries, and manufacturing opportunities to attract talents to stay and develop. One of Hong Kong's unique advantages is that if we regard the fintech sector as a separate industry, we do not have much advantage. However, if we combine the development of fintech with the advantages of the financial industry chain, it will be very helpful to promote the development of Hong Kong's financial services industry.

So we are currently researching what different areas in the financial services industry have significant room for improvement or where there are opportunities for smoother regulation. We hope to identify key issues and challenges facing the industry in our report, and then propose corresponding suggestions to improve and increase the application of blockchain in the financial services industry. For example, in the Hong Kong carbon market, we are exploring scenarios such as carbon trading and financing, and utilizing blockchain technology to serve some traditional financial service industries.

BlockBeats: Just now we talked about the significance of talent development, talent introduction, and training for Hong Kong to become a blockchain center. What are the challenges in blockchain talent in Hong Kong? What policies will be adopted to attract or cultivate blockchain talent?

Dong Yiyue: For me, as long as there are more blockchain application scenarios in Hong Kong, it can attract more related talents to come to Hong Kong. At the same time, local universities are also strengthening training, connecting the financial services industry and attracting blockchain developers to land, which helps the financial services industry understand how to use blockchain technology and helps to promote their operational efficiency.

In August of this year, the Golden Hair Bureau released a research report on how to cultivate contemporary young talents in Hong Kong's talent ecosystem to lead the stable future of Hong Kong's financial services industry. The report pointed out that in addition to data literacy and financial technology talents, the overall financial industry currently needs talents with strong soft skills and language operation abilities, including data literacy. Talents with these abilities will definitely make positive contributions in the blockchain, Web3.0, or the overall financial industry.

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