- Hong Kong SFC’s CEO highlights the transformative potential of DLT in financial services.
- Tokenization in finance could enhance efficiency, reduce costs, and increase financial inclusion.
The CEO of the Hong Kong Securities and Futures Commission (SFC), Julia Leung, recently underlined how technology is revolutionising the financial markets.
Presenting to a group of international executives from the public, commercial, academic, and financial sectors, Leung underlined how important technology—especially distributed ledger technology (DLT)—is to changing the financial scene.
Julia Leung, CEO of Hong Kong SFC, said: It is a fact that 15 years on, Bitcoin has survived multiple cycles of boom and bust, clearly showing its staying power as an alternative asset. More clearly, its underlying technology, distributed ledger technology, is here to stay. Read…
— Wu Blockchain (@WuBlockchain) June 6, 2024
From Consumer Electronics to Financial Services
Leung started her address by equating the potential of DLT in financial services with the broad use of smartphones. She talked about how, with their integrated cameras, wallets, and even keys, cellphones have become essential.
Many once necessary gadgets and brands are now obsolete as a result of the digital revolution. Leung says the lesson is that companies might suffer serious repercussions if they do not keep up with technology developments.
DLT and Its Applications in Finance
Currently, the financial sector is discussing if DLT can transform financial services in a way that consumer electronics have changed. According to Leung, DLT finds use in trade finance and virtual assets (VAs), among other areas of global finance.
With this technology, real-world assets can be transferred into blockchain securely and efficiently, maybe revolutionizing conventional financial transactions and operations.
Though discussions regarding the inherent worth of virtual assets (VAs) like Bitcoin and Ether continue, Leung noted that Bitcoin has endured 15 market cycles, demonstrating the durability of its underlying technology, distributed ledger technology.
Also, she outlined some of the possible advantages of DLT, namely increased efficiency and lower expenses in the distribution, clearing, settlement, and custody of real-world assets.
Leung also talked about the increasing usage of tokenization in actual assets, such as real estate, art, and airline tickets, which may increase financial transparency and inclusivity.
Tokenization’s Impact on Financial Services
Leung clarified that tokenization might have advantages even for conventional financial services. The financial sector may become much more efficient by chaining primary issuance, secondary market trading, custody, and hypothecation of traditional assets.
Realizing this ambition, meanwhile, calls for developing and growing the DLT ecosystem to provide institutional-grade financial services, with an emphasis on interoperability between financial institutions and national boundaries.
With the approval of the first tokenized investment product, a gold token, for retail access and the issue of digital government green bonds, Hong Kong is progressively creating a Web3 ecosystem.
In addition, the SFC has authorized the first batch of VA spot ETFs in Asia, significantly increasing the range of digital products available in the area.
Leung emphasized the need to strike a balance between innovation and regulation. Dispelling the myth that the two are at odds, she said that investor protection and the development of a healthy Web3 environment depend on regulation.
Taking a technology-neutral position, the SFC applies the “same business, same risks, same rules” tenet to guarantee uniform regulatory requirements. To address the risks connected to developing technologies and to guarantee regulatory consistency and clarity, the regulator has taken further steps.
Hong Kong’s Regulatory Framework for VAs
The Hong Kong regulatory environment governing virtual assistants is still developing. The Hong Kong SAR Government is preparing to control fiat-referenced stablecoins and developing a licensing system for over-the-counter VA service providers.
With these steps, investors are to be safeguarded and the responsible application of cutting-edge technology guaranteed.
Leung emphasized Project Ensemble, a joint initiative by the Hong Kong Monetary Authority (HKMA) to expand Hong Kong’s tokenization sector.
The project tries to harmonize blockchain standards for interoperability and concentrates on tokenized deposits. Tokenization use cases like trading and tokenized product settlement will be tested in a sandbox.
On the other hand, a recent ETHNews report highlighted 11 companies that withdrew license applications in Hong Kong owing to limitations on customers in mainland China.