The Hong Kong Stock Exchange has made another big move in the cryptocurrency market!

On October 29, the Hong Kong Stock Exchange announced that it will launch the Hong Kong Stock Exchange Cryptocurrency Asset Index Series (the Index Series) on November 15, 2024, providing a reliable benchmark price for the rapidly emerging asset class of cryptocurrency, supporting Hong Kong's development as Asia's leading digital asset center.
The Index Series will provide transparent and reliable benchmarks for the pricing of Bitcoin and Ethereum in the Asian time zone, aiming to provide a unified reference price for cryptocurrency assets and address price discrepancies between global exchanges.
Hong Kong Stock Exchange Group CEO Charles Li stated, "We are pleased to launch the Hong Kong Stock Exchange Cryptocurrency Asset Index Series to meet the regional demand for this rapidly emerging asset class. By providing a transparent and reliable real-time benchmark, we hope to help investors make informed investment decisions, thereby supporting the healthy development of the cryptocurrency ecosystem and consolidating Hong Kong's position as an international financial center."

I. Development Trends of Cryptocurrency Assets in Hong Kong
With the continuous advancement of technology, virtual assets as an emerging asset class are gradually occupying an important position in the global financial market. As an international financial center, Hong Kong is actively exploring the development of the virtual asset field, demonstrating strong innovative vitality and foresight.
The launch of the virtual asset index series by the Hong Kong Stock Exchange is undoubtedly a significant initiative for Hong Kong in the virtual asset field. This index series will provide transparent and reliable pricing benchmarks for Bitcoin and Ethereum in the Asian time zone, helping to address the issue of price discrepancies for such assets between global exchanges. By providing real-time data and daily reference prices, the public's understanding of virtual asset investment trends will also be further enhanced.
The progress of cross-border payments between Hong Kong and the mainland also provides strong support for the development of cryptocurrency assets. Hong Kong Monetary Authority Chief Executive Eddie Yue stated that it is expected to pilot cross-border payments and "Faster Payment System" in the middle of next year, which will make interbank payments more convenient and efficient, providing more favorable conditions for the trading and circulation of cryptocurrency assets.
In addition, the release of the financial market application of AI policy declaration indicates Hong Kong's active exploration in the field of financial technology. The adoption of a dual-track model promotes the application of artificial intelligence in the financial services industry while addressing potential challenges. The Hong Kong University of Science and Technology has opened AI models and computing resources, and financial regulatory agencies continue to review and update regulations and guidelines, which will bring new opportunities for the development of Hong Kong's financial market.
In summary, a series of initiatives in the cryptocurrency asset field in Hong Kong demonstrate its determination and strength in financial innovation, providing valuable references for the development of the global cryptocurrency market.
II. Legal Regulations on Cross-Border Payments of Virtual Assets

(A) Comparison between the Mainland and Hong Kong
In the field of cryptocurrency trading, there are significant differences in policies between the Mainland and Hong Kong. The Mainland has implemented strict restrictions on cryptocurrency trading to safeguard national financial security and social stability. The People's Bank of China has comprehensively prohibited settlement services related to cryptocurrencies and the provision of trader information services, clearly stating that cryptocurrency trading is not protected by law in China.
Moreover, according to existing laws and regulations such as the Anti-Money Laundering Law and the Banking Law, cryptocurrency trading may be suspected of being illegal. In 2021, the central bank of China, in conjunction with multiple departments, issued a notice explicitly prohibiting financial institutions and payment institutions from engaging in businesses related to cryptocurrencies, and several local governments have imposed restrictions on cryptocurrency "mining" activities, shutting down over 2,000 platforms involved in cryptocurrency trading.
In contrast, Hong Kong has a relatively lenient regulatory environment for cryptocurrencies, allowing for their trading and use. The Hong Kong Monetary Authority and the Securities and Futures Commission have implemented a certain degree of regulation on cryptocurrencies, but overall, Hong Kong is regarded as a cryptocurrency-friendly region.
Hong Kong's policies aim to actively explore emerging fields, support the development of financial technology, and regulate and guide cryptocurrency assets as a rapidly rising asset class. In terms of laws and regulations, Hong Kong has not yet introduced specific laws targeting cryptocurrency trading, but the industry is regulated by agencies such as the Anti-Money Laundering and Terrorist Financing Ordinance.
In terms of regulatory agencies, the regulatory bodies for the cryptocurrency market in Hong Kong include the Hong Kong Monetary Authority, the Securities and Futures Commission, and the Anti-Money Laundering Commissioner’s Office, among others. The Hong Kong Monetary Authority is primarily responsible for preventing money laundering and terrorist financing risks, while the Securities and Futures Commission mainly oversees investor protection.
(B) Specific Regulations in Hong Kong
Hong Kong has clear legal regulations regarding cross-border payments of cryptocurrencies. In terms of bank compliance reviews, Hong Kong banks, including HSBC, typically conduct strict compliance checks on transactions involving cryptocurrencies, especially when large sums of money are involved. Banks may require proof of the source of funds and detailed transaction records; if satisfactory documentation cannot be provided, the bank may refuse to process the funds or freeze the relevant accounts.
Regarding capital controls, the Mainland has implemented strict regulations on the cross-border flow of funds, particularly concerning capital outflow. Converting USDT into fiat currency and transferring it to a Mainland bank account may encounter restrictions or delays.
Mainland residents typically have an annual foreign exchange quota of $50,000, and exceeding this quota may trigger scrutiny. Large fund flows involving cryptocurrency trading may raise banks' alertness, leading to account freezes or transaction rejections, especially for Mainland clients' Hong Kong bank accounts.
In terms of restrictions on cross-border capital flows, Hong Kong Monetary Authority Chief Executive Eddie Yue stated that Hong Kong's "Faster Payment System" will be connected to the Mainland's online payment interbank clearing system, and discussions are ongoing with the People's Bank of China regarding details such as exchange rate calculations and limit settings. Although Hong Kong is actively promoting cross-border payment cooperation with the Mainland, considerations regarding both parties' regulatory policies and restrictions are still necessary when it comes to cross-border payments involving cryptocurrencies.
III. Relevant Laws on Cryptocurrencies in Hong Kong
(A) Regulatory Agencies and Responsibilities
The regulatory agencies for private digital currencies in the Hong Kong Special Administrative Region mainly include the Securities and Futures Commission (SFC), the Hong Kong Monetary Authority (HKMA), and the Hong Kong Insurance Authority (HIA).
SFC: Primarily responsible for the regulation of private digital currencies.
The SFC clearly defined private digital currency exchanges in a public announcement on November 3, 2020, allowing or inviting clients to trade any virtual asset using currency or virtual assets, and having previously held, controlled, or managed any currency or virtual asset during the business process. The SFC has set specific requirements for the operating locations, organizational structure, business scope, and capital of private digital currency exchanges.
HKMA: Responsible for financial stability and the formulation of monetary policy. The HKMA categorizes cryptocurrencies into security-type cryptocurrencies, functional cryptocurrencies, and virtual goods (e.g., Bitcoin).
HIA: Responsible for collaborative regulation.
(B) Regulatory Sandbox System
Hong Kong makes full use of the regulatory sandbox system to regulate the issuance and trading activities of private cryptocurrencies, exploring appropriate regulatory rules for private digital currencies.
At the end of 2019, the SFC encouraged providers of innovative private cryptocurrency services to actively participate in regulatory sandbox testing and implement voluntary reporting.
In November 2020, during Hong Kong FinTech Week, the Financial Services and the Treasury Bureau announced new policy measures, mandating that cryptocurrency service providers apply for virtual currency licenses, comprehensively regulating trading services for security-type and non-security-type tokens, and licensing all cryptocurrency trading platforms registered and operating in the Hong Kong Special Administrative Region. Organizations that do not obtain a license issued by the SFC will not be allowed to conduct cryptocurrency business in the Hong Kong Special Administrative Region.
In terms of anti-money laundering regulation, the HKMA issued the "Anti-Money Laundering and Terrorist Financing Ordinance" in September 2019 and the "Position Paper: Regulating Virtual Asset Trading Platforms" on November 6, 2019, proposing a comprehensive anti-money laundering regulatory system that includes customer identity verification, suspicious transaction tracking, and combating money laundering.
Exchanges should fully implement customer identification, including:

1. Confirming the true identity, income status, investment experience, risk preference, and investment objectives of each customer, fulfilling sufficient customer explanation obligations and necessary customer training;
2. Obtaining the real IP address or refusing to provide services to customers who provide fake IPs or anonymous IPs;
3. Establishing a comprehensive monitoring platform for large and suspicious transactions, such as the "Four Steps" identification method for suspicious transactions (referred to as "SAFE"), which includes: (1) screen (preliminary review), paying special attention to transactions related to terrorists or criminals; (2) ask (question), asking targeted questions to customers; (3) find, reviewing customers' past transaction records; (4) evaluate (assess), judging whether the transaction is suspicious based on the information available.
   (C) Impact of the Licensing System
   The licensing system for cryptocurrency service providers stipulated in the "2022 Anti-Money Laundering and Terrorist Financing (Amendment) Ordinance" has brought multiple impacts.
   For cryptocurrency trading platforms, the licensing system makes their operations more standardized, requiring compliance with a series of regulatory requirements, including but not limited to anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations, fund security, customer asset segregation, auditing and reporting, and appropriate internal controls. This helps enhance the security and credibility of trading platforms, attracting more investors to participate.
   For investors, the licensing system provides more protection. Trading on licensed platforms ensures greater security for investors' funds, while also providing more transparent market information and more standardized customer services. Additionally, the licensing system helps enhance investors' confidence in the cryptocurrency market, promoting healthy market development.
   From the perspective of the entire industry, the licensing system helps promote the healthy development of the cryptocurrency market in Hong Kong. On one hand, it can attract more international cryptocurrency service providers to enter the Hong Kong market, enhancing Hong Kong's position in the global cryptocurrency field; on the other hand, it can promote innovation and development in Hong Kong's local cryptocurrency industry, bringing new growth points to Hong Kong's economy.
   IV. Legal Policies for AI Application in Hong Kong's Financial Market
   (A) Overview of Policy Declaration Content
   The Hong Kong SAR government has issued a policy declaration regarding the responsible application of artificial intelligence in the financial market, clearly stating the adoption of a dual-track model, which promotes the adoption and development of artificial intelligence in the financial services industry while addressing potential challenges such as cybersecurity, data privacy, and intellectual property protection.
   Financial institutions should develop AI governance strategies, adopting a risk-based approach in the procurement, use, and management of AI systems, while human supervision is crucial to mitigate potential risks.
   The Hong Kong University of Science and Technology will open its developed AI models and computing resources for use by Hong Kong's financial services industry and provide consulting and training services for financial institutions in deploying internal systems or developing applications and web interfaces. Meanwhile, Hong Kong's financial regulatory agencies will continue to review and update existing AI regulations and guidelines.
   (B) Legal Significance of the Dual-Track Model
   The dual-track model has significant legal implications.
   On one hand, encouraging the financial services industry to actively explore the application of artificial intelligence helps enhance the efficiency of financial services, innovate financial products and service models, and bring new development opportunities to Hong Kong's financial market.
   On the other hand, the measures to address potential risks reflect the foresight and prudence of the law. Issues such as cybersecurity, data privacy, and intellectual property protection are significant legal risks that may arise during the application of artificial intelligence in the financial sector. By providing clear policy guidance and regulatory requirements, financial institutions can be encouraged to pay more attention to compliance when applying artificial intelligence, thereby reducing legal risks.
   For example, in terms of cybersecurity, financial institutions need to strengthen the security protection of AI systems to prevent hacking and data breaches. According to relevant data, financial losses due to cyberattacks over the past 20 years have reached over $200 billion.
   As an international financial center, Hong Kong has stricter requirements for cybersecurity. The dual-track model in the policy declaration requires financial institutions to establish a comprehensive cybersecurity management system while adopting artificial intelligence, implementing measures such as encryption technology and access control to ensure the security of financial data.
   In terms of data privacy, the operation of AI systems relies on a large amount of data, and financial institutions must comply with relevant laws and regulations when collecting, using, and storing customer data to protect customers' privacy rights. The Hong Kong Personal Data (Privacy) Ordinance imposes strict regulations on the collection, use, and disclosure of personal data, and financial institutions must ensure the legality, legitimacy, and necessity of data when applying artificial intelligence, avoiding the misuse of customer data.
   In terms of intellectual property protection, the development of artificial intelligence technology involves numerous intellectual property issues, such as patent protection for algorithms and copyright issues for data. Financial institutions must clarify the ownership and usage rights of intellectual property when using AI models and computing resources to avoid infringing on others' intellectual property rights.
   The initiative of the Hong Kong University of Science and Technology to open AI models and computing resources in the policy declaration also needs to clarify the protection and usage rules of intellectual property within the legal framework to promote the rational use of resources and innovative development.
   (C) Legal Responsibilities of Financial Regulatory Agencies
   Hong Kong's financial regulatory agencies bear important legal responsibilities in the application of artificial intelligence in the financial market. On one hand, financial regulatory agencies should continuously review and update existing AI regulations and guidelines to ensure that laws and regulations are aligned with technological developments. As artificial intelligence technology continues to evolve, new legal issues and risks will also emerge, and financial regulatory agencies need to promptly adjust and improve laws and regulations to provide strong legal protection for the healthy development of the financial market.
   On the other hand, financial regulatory agencies should strengthen their oversight of financial institutions' use of artificial intelligence, ensuring that financial institutions comply with laws, regulations, and regulatory requirements. Financial regulatory agencies can supervise and inspect financial institutions' AI systems through on-site inspections and off-site monitoring, requiring timely rectification of any identified issues. Additionally, financial regulatory agencies can establish reporting mechanisms to encourage the public to report illegal activities by financial institutions, enhancing social oversight.
   
   In summary, Hong Kong's regulatory framework for cryptocurrency assets and the application of artificial intelligence reflects its foresight and prudence as an international financial center. Through clear policy declarations and regulatory guidelines, Hong Kong not only provides a clear path for the compliant development of virtual assets but also sets high standards for the responsible application of artificial intelligence technology in the financial sector.
   While financial institutions enjoy the conveniences and innovations brought by technology, they must also strictly adhere to relevant laws and regulations to ensure the stability of the financial market and the protection of customers' rights.
   In the future, we look forward to the continuous optimization of Hong Kong's regulatory framework to adapt to new challenges and demands as technology advances and the market develops, further consolidating its position as a global financial innovation hub.
   Final Three Thoughts
   Thought One: Why choose Bitcoin and Ethereum as index components?
   The virtual currency market is diverse, but Bitcoin and Ethereum hold unique positions. Bitcoin, as the first virtual currency, has extremely high recognition and widespread awareness, playing a pioneering role in the development of cryptocurrencies. Ethereum, relying on the powerful Ethereum blockchain platform, supports various functions such as smart contracts, playing an important role in the field of blockchain applications.
   From a market perspective, these two cryptocurrencies have long been at the forefront in terms of circulating market capitalization, with relatively high market liquidity. This makes them highly representative in terms of price discovery and reflecting market trends. At the same time, the Hong Kong Securities and Futures Commission has conducted strict screening of cryptocurrencies available for retail trading, and Bitcoin and Ethereum also meet compliance requirements, providing a basis for their inclusion in the virtual asset index.
   Thought Two: Is the timing for launching the cryptocurrency index appropriate?
   Hong Kong has been actively exploring innovation in the financial sector, especially maintaining keen insight and action in financial technology. As early as 2022, the Hong Kong government issued the "Policy Declaration on the Development of Virtual Assets in Hong Kong," clarifying its vision and guidelines for the development of the virtual asset industry, laying a policy foundation for subsequent development.
   Subsequently, the Hong Kong Securities and Futures Commission actively promoted related work, issuing licenses for cryptocurrency exchanges and fund companies, and successfully listing Asia's first virtual asset ETF in 2024. This series of initiatives indicates that Hong Kong has conducted systematic planning and sufficient preparation for cryptocurrency trading.
   In terms of regulation, the regulatory documents for cryptocurrency trading by the Hong Kong Securities and Futures Commission have long been finalized, providing solid legal protection for the launch of the virtual asset index. Hong Kong has already accumulated a certain amount of market experience and regulatory experience in the cryptocurrency field, making the launch of the cryptocurrency index a natural progression rather than a hasty move.
   Thought Three: What are the deeper reasons for Hong Kong launching the cryptocurrency index?
   In the competition among global financial centers, Hong Kong faces challenges from cities like Singapore. In recent years, Singapore has rapidly developed in asset management scale and financial innovation, taking the lead in the field of cryptocurrency. Singapore's "Payment Services Act" provides strong support for innovation in financial technology, and its initiatives in virtual asset ETF trading have attracted significant capital and attention.
   As a traditional financial center, Hong Kong cannot fall behind in emerging fields. The launch of the cryptocurrency index is an important measure for Hong Kong to actively respond to competition, aiming to enhance its competitiveness in financial innovation and financial technology. The introduction of the cryptocurrency index is not only an exploration of cryptocurrency assets but also aims to attract more investors and capital into Hong Kong, consolidating Hong Kong's position as a financial center in Asia.