Hong Kong Crypto Regulators' Roundtable: Pursuing Perfection Too Much Can Backfire

This article content is from two discussions at the Finternet 2025 Asian Digital Finance Summit held in Hong Kong on November 4th. The first part discusses “The Evolution of Digital Asset Regulation from Hong Kong to the Middle East,” hosted by Rocky Tung, Director and Head of Policy Research at the Hong Kong Financial Development Council. The guests are Elizabeth Wong, Director of Intermediaries and Head of Fintech at the Hong Kong Securities and Futures Commission (SFC), and Wai Lum Kwok, Senior Executive Director of the Financial Services Regulatory Authority at Abu Dhabi Global Market (ADGM). The second part covers “Breakthroughs, Innovation, and Guardianship in Hong Kong,” hosted by Gary Tiu, Executive Director and Head of Regulatory Affairs at OSL Group, with guest Eric Yip, Executive Director of Intermediaries at the Hong Kong Securities and Futures Commission.

The Finternet 2025 Asian Digital Finance Summit was held in Hong Kong on November 4th, centered around the theme “Connecting Ideals, Building the Future,” supported by over ten organizations including OSL Group, InvestHK, the Hong Kong Financial Development Council, and Hong Kong Digital Coast.

Earlier, on November 3rd, the Hong Kong Securities and Futures Commission (SFC) issued a circular, marking the first time it allowed licensed virtual asset trading platforms in Hong Kong to share order books with overseas subsidiaries or affiliated platforms within the same group. This enables Hong Kong investors to directly match trades with overseas markets, enjoying deeper liquidity and prices closer to international standards.

Audio transcription is generated by GPT and may contain errors. Guest opinions do not represent Wu’s views. Readers should strictly comply with local laws and regulations. Watch the full content on YouTube:

Part 1: The Evolution of Digital Asset Regulation from Hong Kong to the Middle East

Changes in Hong Kong’s Digital Asset Regulatory Approach

Rocky: The Financial Services Development Council began focusing on cryptocurrencies in 2021, but the SFC has been involved since 2018. As an international financial hub, Hong Kong cannot ignore this emerging field. In 2021, we decided to move beyond restricting access to professional investors only.

Against this backdrop, Hong Kong’s regulatory approach to digital assets has continuously evolved, expanding the scope of SFC oversight. Elizabeth, how do you view these changes in SFC’s digital asset regulation?

Elizabeth: Since 2018, the SFC has regulated digital assets with the goal of creating a safe ecosystem. We adopted a cautious, conservative strategy initially by establishing a closed ecosystem. As the market developed, we realized that this closed environment limited Hong Kong’s connection to global liquidity.

To enhance liquidity, we decided to allow licensed virtual asset platforms to share global order books with overseas affiliates, fostering Hong Kong’s integration with international markets.

This policy took time to develop because we wanted close collaboration with industry, understanding potential risks, and providing clear regulatory frameworks. Our aim is to promote compliance and build industry trust through this approach.

The industry has gradually recognized the importance of regulation; they support and look forward to licensing, which helps sustainable development.

Regulatory Changes in Abu Dhabi

Rocky: About two years ago, when I visited ADGM—Abu Dhabi’s international financial free zone—cryptocurrencies weren’t a particular focus. Now, Abu Dhabi shows strong leadership in this area with forward-looking plans. Could you confirm if this is accurate? If so, what prompted the change?

Wai Lum: When you visited in 2021, cryptocurrencies weren’t a priority, though they are important to us. We introduced a framework in 2018, at a time when global discussions centered on AML and counter-terrorist financing risks. We decided to go beyond these issues by collaborating with multiple agencies, referencing frameworks from Japan’s FSA and New York’s DFS. Ultimately, we extended traditional financial regulation to cover crypto, viewing it as a new asset class.

This decision aimed to integrate traditional and new finance sectors. While this means tech companies face higher thresholds, we see increasing cross-sector integration. Today, many securities firms, crypto brokers, and traders operate under a single license covering multiple activities.

Market dynamics have shifted since 2018. Initially, firms mainly served retail investors for price discovery and trading. After the FTX collapse, institutional investors became more interested in custody solutions. As custody tech matures, activities like staking and lending attract more participants. ADGM has formed an initial ecosystem including brokers, exchanges, stablecoin issuers, and lending platforms. We also see traditional finance (TradFi) and DeFi deploying strategies. This is a promising field, and close industry-regulator interaction is vital.

Cross-Border Trading and Capital Flows Regulation Challenges

Rocky: I see many similarities between ADGM and Hong Kong regulators. Both have international backgrounds and unique features. We aim to connect with different markets and parties, progressing steadily rather than rushing to invite everyone in, avoiding situations where participants withdraw en masse when problems arise. I’d like to ask both of you: what are the commonalities you see in the market? And what are the differences? How can participants leverage and access each other’s markets?

Wai Lum: I see many similarities. Over time, regulatory frameworks are increasingly converging. We mainly view crypto through a traditional finance lens, focusing on investor protection and financial system safety. From this perspective, Hong Kong, Singapore, and the UAE are aligning their frameworks—sharing elements like asset segregation and market abuse rules. This convergence facilitates business expansion. Currently, companies in Hong Kong and the UAE seek growth, making framework alignment crucial. Although each market has different priorities and starting points, these gaps are narrowing over time.

Elizabeth: I agree. International standard-setting bodies advocate for uniform regulation—“same activity, same risk, same regulation.” This is reflected in Hong Kong and the UAE. We all promote digital asset ecosystems within traditional financial frameworks. I also agree with Wai Lum that many firms consider regulatory environment when choosing headquarters, as it boosts investor and client confidence, supporting global expansion.

Regarding tokenized assets, regulators worldwide treat them similarly—if an asset is a security, it’s regulated as such. This approach is widely supported globally, especially by fintech firms, which are adept at operating within these rules. Whether in crypto or traditional finance, large firms focus on digital asset ecosystems.

Progress in Hong Kong’s Digital Asset Ecosystem Development

Rocky: We need to build an effective ecosystem connecting traditional finance and digital assets, while also integrating with other markets. Hong Kong faces complex challenges here, especially regarding the licensing of OSL. Why has the approval process been so lengthy? How can we ensure healthy ecosystem development while complying with regulations?

Elizabeth: We acknowledge that licensing approval for virtual asset platforms in Hong Kong has taken time. Initially, when working with OSL, regulators needed to deeply understand the digital asset market. We collaborated closely, investing time to understand their business and the nature of digital assets. Many firms still see themselves as originating from the crypto world, not fully part of traditional finance, which takes time to adapt to regulatory expectations.

Currently, we’re working with the government on two consultation papers to improve Hong Kong’s digital asset ecosystem. We’re considering licensing virtual asset brokers and custodians to regulate each segment. We believe that compliant regulation will foster a sustainable market.

There’s also advice to expand regulation to include virtual asset advisory and fund management services. We’re exploring whether to incorporate these into the regulatory scope. Once a complete ecosystem is established, more overseas firms will enter Hong Kong, bringing global liquidity and further growth.

How ADGM Ensures Seamless, Secure, and Traceable Cross-Border Transactions

Rocky: How does ADGM ensure seamless cross-border transactions and capital flows? How do you improve efficiency and ensure security, clarity, and traceability?

Wai Lum: Being a pioneer is challenging, but we see transformation as inevitable. We’ve been proactive, engaging with industry early because there are no existing models. We apply traditional financial frameworks to new finance to address interoperability and efficiency.

To ensure future adaptability, close industry engagement is key. Industry participants help us understand product needs and business models, guiding us to tailor frameworks. Over time, we’ve developed frameworks for stablecoins, tokenized assets, and lending platforms.

Most of these firms support compliance and work with us to follow rules. They also share insights on regulatory challenges in other jurisdictions, helping us refine our frameworks. Maintaining responsiveness to industry and global standards is crucial; diverging could hinder overseas expansion. Therefore, staying connected with industry and participating in global regulatory dialogues—like FSF and stablecoin associations—is vital.

Practical Applications and Market Feedback on Tokenized Assets

Rocky: Communication with industry is essential. We shouldn’t be regulators in isolation but maintain dialogue to ensure sustainable development across jurisdictions. Tokenization has become a hot topic—are there successful cases in Hong Kong?

Elizabeth: Honestly, progress has been slow. We issued guidance on tokenization in 2023, but by 2025, practical applications are still emerging. Our work involves clarifying how securities law applies to tokenized securities, providing regulatory guidance, and assisting industry through HKMA’s “Regulatory Sandbox” initiatives.

Our experience with tokenization mirrors that of digital assets. We sought industry feedback on trading platform policies but received limited responses. We hope the market will participate more actively to push this forward.

We’re planning to accelerate efforts in the coming months, promoting real-world applications of tokenized assets and other digital assets.

Handling Cross-Border Interoperability and Regulatory Challenges

Rocky: Cross-border interoperability is a major challenge for practitioners and regulators alike. How do you ensure this challenge is managed effectively to enable seamless cross-border transactions?

Wai Lum: Interoperability can be categorized into inter-governmental, industry-to-industry, and technical-regulatory levels.

For inter-governmental cooperation, ongoing dialogue is essential. Digital assets are inherently cross-border, with many firms operating across jurisdictions. We maintain communication to clarify positions, especially when engaging with other regulators. Different jurisdictions have varying priorities, so we select industry players aligned with our vision to develop shared standards.

Industry models vary—some use specific blockchains, others develop their own Layer 1 solutions. As regulators, we focus not only on inter-governmental interoperability but also on regulatory-Industry and regulatory-technology interoperability. We incorporate RegTech and SubTech into our strategy. For example, in fiat-backed tokens and stablecoins, we can track on-chain circulation in real time and interface with reserve accounts via APIs, ensuring data accuracy. This exemplifies regulatory-industry interoperability.

Additionally, we’re encoding rules into machine-readable formats, aiming for smart contracts that can interact with our regulations, monitor changes, and adapt dynamically.

Elizabeth: In February, we published the “Digital Asset Roadmap,” covering derivatives trading and lending. We’re also exploring ways to strengthen industry dialogue, understand market trends, and develop more effective regulations. We’re working on monitoring mechanisms, especially as we onboard more regulators and participants, to maintain oversight.

These initiatives are on the horizon. While full implementation may take time, we’re committed to advancing these efforts.

Practical Use Cases and Market Feedback on Tokenized Assets

Rocky: Communication with industry is key. We must avoid being regulators in isolation and keep dialogue open to ensure sustainable development. Are there successful tokenization cases in Hong Kong?

Elizabeth: Progress is slow. We issued guidance in 2023, but by 2025, practical applications are still limited. We clarify how securities laws apply to tokenized securities and assist industry through HKMA’s sandbox. We seek more market participation to accelerate progress.

Managing Cross-Border Interoperability and Regulatory Challenges

Rocky: Cross-border interoperability is complex. How do you ensure effective management of this challenge?

Wai Lum: It involves inter-governmental, industry, and technical-regulatory interoperability. Continuous dialogue with other regulators is vital. Industry players must share common visions and standards. We focus on developing shared frameworks, leveraging RegTech and SubTech solutions, and ensuring real-time monitoring and compliance through digital tools. This approach helps us maintain effective cross-border operations.

Part 2: Hong Kong’s Breakthroughs, Innovation, and Guardianship

How Can Hong Kong’s Cryptocurrency Policies Stay Aligned with Market Developments?

Gary: As a policy maker at the SFC, how do you ensure policies remain relevant long-term and don’t fall behind market changes?

Eric: Striving for perfection isn’t always best. Like I tell colleagues, sometimes not asking for a raise can lead to one. The same applies to regulation—overdoing it can backfire.

In practice, we use laws, rules, and guidelines to shape regulation. Hong Kong’s system has matured since 2018. Compared to the US, where crypto regulation is still evolving, our focus is on combating unlicensed activity rather than rigid legislation.

We maintain flexibility through consultations, notices, and dialogue. Markets want principles-based regulation, but once rules are set, they often demand clarity. I believe initial regulation should be rule-based, then shift to principles as the market matures—this allows adaptability. Hong Kong aims for a high-quality, responsive market, and we’re heading in that direction.

How Do Banks Balance Principles and Rules in Digital Asset Policies?

Gary: As a former banker and current regulator, do you see differences in thinking between banking and regulation in digital assets? How do you choose between principles and rules?

Eric: I’ve worn many hats—pianist, stock exchange manager, private equity, banker, regulator. My career has involved many transitions.

Now, as a regulator, I find this phase the easiest. My consistent philosophy is to have plans, build steadily, and grow. You can’t skip steps—like trying to play Mozart without practice. You need to learn and prepare.

The same applies to digital assets. Our achievements stem from a long journey starting in 2018. We’re not the most aggressive regulator, but we’re persistent. We’ve avoided major crypto disasters like FTX.

Accelerating Innovation and “Fail Fast” in Hong Kong

Gary: I like your self-assessment. We review every three months; the last was three weeks ago, and we’re still recovering from setbacks. Your plans for faster licensing and innovation are intriguing. Everyone wants Hong Kong to innovate quickly and stay agile, embracing iterative “fail fast” approaches.

My question: Hong Kong has seen early “fail fast” attempts—if a project doesn’t meet requirements, it’s not given a chance. Alternatively, some projects are allowed to enter the market but exit if non-compliant. Should Hong Kong see more of the latter—allowing projects to launch quickly and exit naturally if they fail?

Eric: That should be part of acceleration. We prefer a “small steps, quick pace” approach. I’m not a digital assets CEO but serve as an intermediary director, so I oversee broader markets. While I spend much time on digital assets, I also focus on the remaining 95% of the market.

Regulation involves balancing risks and rewards. With more capital, you can innovate more boldly. With limited funds, caution is necessary.

Is Trial-and-Error More Challenging in Digital Asset Policy?

Gary: Does trial-and-error become more difficult with digital assets?

Eric: Not really. I believe the key is not to seek perfection but practicality. My team works hard, and we’re always improving. Progress is incremental.

Hong Kong’s Balance of Persistence and Flexibility

Gary: What would you like Hong Kong’s crypto market to do? What products? When can we expect these innovations?

Eric: Preparation is essential! I’m committed and have clear product plans—derivatives, modular financing, staking, lending. Yesterday, I discussed capital rules for virtual asset derivatives trading with colleagues. I’ve already set these goals.

Gary: How long until these products hit the market?

Eric: It depends on market readiness. I want to push forward, but Hong Kong’s market needs time to adapt. Our principles-based regulation requires market maturity and professionalism. We can set policies, but market development must keep pace. Sometimes, we’re ahead of the market. Our work involves close cooperation to foster growth.