Hong Kong virtual asset tokens

The Financial Secretary of Hong Kong launched an essay entitled “Contributing Hong Kong’s Strength to Chinese-style Modernization – Thoughts on Learning the Spirit of the 20th National Congress of the Communist Party of China” on Constitution Day, stating that different forms of activities are being held throughout the country, and that through an in-depth understanding of the spirit and implementation of the Constitution and a better understanding of the relationship between the Constitution and the Basic Law, it will help Hong Kong to be fully prepared to implement “One Country, Two Systems” and contribute Hong Kong’s strength in the country’s march towards Chinese-style modernization; for the realization of this contribution, what are the policy instruments involving virtual asset-based tokens in Hong Kong?

On June 24, 2022, the Hong Kong Government published in the Gazette the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 (hereinafter referred to as the Bill), which was passed at the Third Reading of the Hong Kong Legislative Council on December 7 and will come into effect on June 1, 2023.

The Bill defines virtual assets, providing that (1) a virtual asset is a cryptographically protected digital value expressed in the form of a unit of account or stored economic value; (2) it may be used as a medium of exchange to pay for goods or services, to settle debts, to invest; or to vote on the management, operation, or change in terms of matters relating to virtual assets. (3) may be transferred, stored, or traded electronically; and (4) the SEC or the Secretary of the Treasury may expand the scope of “virtual assets” by publication in the Gazette.

Hong Kong’s definition of virtual assets is based on the standards set by the Financial Action Task Force (FATF), one of the most influential and authoritative international organizations in the field of anti-money laundering and counter-terrorism financing, with member countries in major financial centers on all continents. The FATF’s “Forty Recommendations on Anti-Money Laundering” and “Nine Special Recommendations on Counter-Terrorism Financing” are the most authoritative documents on anti-money laundering and counter-terrorism financing in the world. According to the “Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers” released by FATF in 2021, a “virtual asset” is clearly defined as follows: a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes.