Hong Kong proposes allowing retail trade in cryptocurrencies

Hong Kong's government has proposed allowing retail investors to trade in cryptocurrencies and crypto exchange-traded funds - a move it hopes will help it rebuild its fintech hub status.

The city, which previously proposed limiting crypto trade to professional investors, has seen planned rules for digital assets heavily criticised for stifling innovation, prompting a slew of start-ups to move to other markets such as Singapore and Dubai.

Authorities will start a consultation process on giving retail investors "a suitable degree of access" to virtual assets, Financial Secretary Paul Chan said in a keynote address broadcast to the Hong Kong Fintech Week conference.

"We want to make our policy stance clear to the global market, to demonstrate our determination to explore fintech with the global virtual asset community," he said.

The government will also review property rights for tokenised assets and explore legalising so-called smart contracts - self-executing transactions whose results depend on pre-programmed inputs.

These moves are likely to pave the way for real estate security token offerings (STOs), industry players said. STOs are blockchain-based tokens that represent ownership interests or entitle holders to income or dividends generated from real assets.

The latest announcement could put Hong Kong's rules on a par with those of Singapore, said Andy Mehan, chief compliance officer for APAC at US crypto exchange Gemini.

"Industry participants want to see consistency in the global regulatory regime, otherwise there will be opportunities for bad actors to exploit loopholes in jurisdictions with less rigid laws," he said.

While Singapore allows retail investors to trade in cryptocurrencies, its central bank has been discouraging the public from speculative trading in cryptocurrencies and brought in restrictions on the advertising of cryptocurrency services in public places. It is also proposing new measures.

Hong Kong's latest move to legalise retail crypto trade would also set Hong Kong further apart from mainland China, which has a imposed a blanket ban on cryptocurrency trade.

"This is a positive move as it sends out a strong message that Hong Kong is taking a different approach in regulating its capital market," said Adrian Wang, chief executive of crypto brokerage Metalpha.

($1 = 7.8492 Hong Kong dollars)