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The Future of Web3 in Hong Kong: Legislative Updates, Regulation, and Governance

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On April 12th, at the 2023 Hong Kong Web3 Carnival, Hong Kong Special Administrative Region Legislative Council member Qiu Dagen stated in his keynote speech that Hong Kong\’s measu

The Future of Web3 in Hong Kong: Legislative Updates, Regulation, and Governance

On April 12th, at the 2023 Hong Kong Web3 Carnival, Hong Kong Special Administrative Region Legislative Council member Qiu Dagen stated in his keynote speech that Hong Kong’s measures in Web3 are a very important moment, and the technology and policies of the Web3 industry need to go hand in hand to establish a better economic system. In the past few months, the Hong Kong government has moved very quickly from announcing support for virtual assets to completing the consultation work on stable currency. In addition, the virtual asset service provider licensing system will be officially introduced in June this year, and two licenses have already been issued. The next steps in Hong Kong’s orderly and compliant investment in the development process of Web3 will be legislative updates, industry regulation, investor protection, and corporate governance.

Hong Kong Legislative Council member Qiu Dagen: Legislative updates and industry regulation are the next steps for Hong Kong’s orderly and compliant investment in the Web3 process

At the 2023 Hong Kong Web3 Carnival, a significant moment occurred when Hong Kong Special Administrative Region Legislative Council member Qiu Dagen declared that Hong Kong’s measures in Web3 are essential to establishing a better economic system. Over the past few months, the Hong Kong government has made significant strides towards the regulation and adoption of virtual assets and cryptocurrencies, with the establishment of a stable currency consultation and introduction of the virtual asset service provider licensing system. The next step for Hong Kong in Web3 is the development of legislative updates, industry regulation, investor protection, and corporate governance.

What is Web3?

Web3 is an umbrella term used to describe the next generation of the internet or the decentralized internet. Unlike Web2, which is characterized by its centralized architecture, Web3 aims to provide a decentralized, autonomous system where users can take control of their data and digital assets. One of the key technologies that underpin Web3 is blockchain, which allows for the creation of decentralized applications (dApps) and smart contracts.

Hong Kong’s Journey in Web3

Hong Kong has been actively exploring the potential of blockchain and cryptocurrencies since the early days of Bitcoin. However, with the rise of Web3 and the broader implications for the economy and society as a whole, the government has been keen to adopt a cautious but supportive stance towards the industry.
In 2022, the Hong Kong government announced its support for virtual assets and cryptocurrencies, recognizing their potential as a significant source of economic growth. The government also established a regulatory framework for virtual asset exchange operators, requiring them to obtain licenses from the Securities and Futures Commission (SFC).

Stable Currency

In the past year, Hong Kong’s regulators have accelerated consultations on the stable currency’s issuance initiative, which is intended to maintain the value of the currency and simplify cross-border payments. According to reports, the Hong Kong Monetary Authority (HKMA) has held preliminary consultations with banks, fintech firms, and other stakeholders. The proposed stable currency would be backed by reserves held by the HKMA, similar to how fiat currencies are managed. Qiu Dagen’s keynote speech highlighted that the implementation of stable currency consultations was one of the critical accomplishments in Hong Kong’s Web3 journey.

Virtual Asset Service Provider Licensing System

In June 2023, Hong Kong is expected to launch the Virtual Asset Service Provider (VASP) licensing system. This licensing system will regulate virtual asset trading platforms to monitor compliance with AML/CFT regulations and enhance investor protection. The SFC awarded two licenses to digital asset trading platforms in early 2023, and approximately ten more organizations are currently issues under consideration. The licensing system is a vital step forward in Hong Kong’s regulatory framework, enabling effective regulations for the growing virtual asset market.

Legislative Updates

While Hong Kong has already made progress in establishing a regulatory framework for virtual assets, legislative updates are needed to adapt to the various challenges and increasingly complex business models that Web3 presents. The Hong Kong government recognizes that overregulation can stifle innovation, which can have a detrimental impact on the adoption of Web3. However, regulations are necessary to prevent fraud and protect investors.

Industry Regulation

The Hong Kong government is looking at industry regulation to ensure that all Web3-related businesses are conducting operations ethically and responsibly. The existing regulatory framework is being adjusted to diminish the risk of fraudulent activities, such as market manipulation, insider trading, and Ponzi schemes, within the industry.

Investor Protection

The Hong Kong government has put in place measures to protect virtual asset investors from losing their assets to bad actors. The VASP licensing system, for example, will force digital asset trading platforms to follow anti-money laundering and counter-terrorism financing (AML/CFT) regulations to ensure that they safeguard their customers’ assets. The government is continuing to monitor the developments in the virtual asset industry and introduce new regulations for increased investor protection.

Corporate Governance

Corporate governance refers to the set of rules, practices, and processes that businesses must adopt to ensure that they operate in a transparent, ethical, and accountable manner. Amid increasing demand and hype surrounding Web3, it is crucial to ensure that Web3 businesses adopt fair and accountable corporate governance standards. According to Qiu Dagen’s keynote address, the technology and policies of Web3 industry need to go hand in hand to establish a better economic system, and corporate governance plays a significant role in achieving this.

Conclusion

Hong Kong has made concrete steps towards a regulatory framework that supports Web3 and cryptocurrency markets, which ensures stability and investor protection within the domain. However, this is only the beginning of its journey, and more regulations and legislative updates will be necessary to ensure the protection of investors’ interests fully. Regulation and governance of the industry have remained important focal points, and it will be important to continue to regulate these to reduce the negative aspects of Web3 development.

FAQs

What is Web3?

Web3 refers to the next generation of the internet, characterized by a decentralized and autonomous system where users can take control of their data and digital assets.

What is a stable currency and why is it important?

A stable currency is a cryptocurrency that maintains its value relative to a specific asset or basket of assets, such as fiat currencies or commodities. Stable currencies are important because they provide a reliable and less volatile cryptocurrency.

What is corporate governance, and why is it important in Web3?

Corporate governance comprises a set of rules, practices, and processes that businesses must abide by to operate ethically, transparently, and accountably. It is crucial in Web3 to ensure that Web3 businesses adopt fair and accountable corporate governance standards. Achieving these standards contributes to establishing a better economic system.

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