As ex-Head of Fintech from the SFC Clara Chiu has been working to make Hong Kong as an international virtual hub for over 14 years - and now changes are a foot. Now as founder of QReg she's ready to explain how and what the new regulations mean for your business.
Walter Jennings: Welcome to Waves in the Finoverse. I'm Walter Jennings, the host of a podcast brought to you by Finoverse. We're talking with the wave makers creating ripples, waves and tsunamis across finance, crypto, FinTech, Web3 and beyond. Listen weekly to hear the changemakers talk firsthand about their experiences in this dynamic industry. Welcome to Hong Kong FinTech week, day two.
I'm Walter Jennings host of Waves in the Finoverse. And joining me in the booth today is Clara Chiu. She is CEO of QReg advisory and former director of the SFC where she was heading the FinTech unit and was the main initiator and architect of Hong Kong FinTech and Virtual Asset regulatory framework. Thank you so much for joining us today, Clara.
Clara Chiu: Thank you, Walter.
Walter Jennings: Clara, you were previous head of FinTech and licencing of the HK Securities & Futures Commission. It must not have been an easy decision to leave, leave the SFC. And you've made a very bold step. What prompted you to do so?
Clara Chiu: Yes, it's a really tough decision. I work at SFC for more than 14 years. And most of my colleagues, they are really good friends. And for SFC is a very professional body. And once you join them, you really don't want to leave them. But when I was there, being FinTech head, there's a lot of misunderstanding about the regulations from the industry.
You know, the financial regulations, from time to time, they're very complex. And with the new virtual assets, regulations, even the most experienced lawyers and advisors, from time to time they would misunderstand or misinterpret the regulations, and the existing regulations seem to be too difficult for them to comprehend. For those businesses, they are advising, the owner of those businesses may also kind of like have a misunderstanding of the whole regime.
So sometimes they complain that the regulations are really out of touch or not realistic. And I was just thinking isn't, in fact, not the case, is just you did not understand the regulation properly. And that's why I started to think of whether I should join an industry maybe, you know, I could give further guidance to them directly. Because, as you know, SFC is a financial regulator, they're not a legal adviser or business advisor.
So one cannot rely on the SFC to do advisory service for them. So that's why, for example, when I was there, there were quite a lot STO projects, and then they discuss with the SFC, and after that they will tell others saying, you know, SFC disallow us to do it. In fact, that's totally not the case. It's only because for those projects, maybe the only half of Asia of the STOs, or their advisors, they also look out some very important regulatory requirements or issue, that's why we stop them.
So going back to your question, and that's why I think, maybe at a time I just leave that SFC and it will be more beneficial to both the industry and the regulators as well, because I could have the industry more directly and bridge the gap between the industry and the regulators.
Walter Jennings: Fantastic. Well, that's a great story of the founding of QReg advisory. Now, during this FinTech week, what are some of the encouraging announcements that you've heard so far?
Clara Chiu: Well, I think the most encouraging announcement is that the Hong Kong government now, just mean that clear that there is a vision to develop Hong Kong as one of the major international virtual assets or centres is really great. And I'm really glad to hear that. When I was the FinTech Head, I initiated all these virtual assets regulations in Hong Kong. And I was from time to time asked by the industry, whether we will develop Hong Kong as an international virtual assets centre. At that time, I could not really answer this question, because I did not have a clear message from the government.
And now, today, I have heard a very clear and loud message from the government that we will develop Hong Kong as a virtual assets international hub. And so I think it's really good with this vision and direction. And all this is so clear, and now we're sure that all other regulatory reforms will follow. And all these will make Hong Kong be the pioneer in the crypto market again.
Walter Jennings: You know, it's been very well received so far in the international media and by other guests. Now, the SFC has made a number of new regulatory proposals. Could you explain to us what they are? And what do you think are the impacts of these changes? What are the major regulatory changes after today?
Clara Chiu: Yeah, maybe I just summarised them in three parts. The first main message that SFC gaze yesterday, during the speech of the Deputy CEO of SFC, Ms Julia Leung, was that the current professional investor of restriction will likely be uplifted after a public consultation. For that maybe I just explained a little bit more.
Now, if you are running Hong Kong licence crypto exchange, you are subject to a licencing condition that you could only serve professional investor. These restrictions, in fact, you know, limits the scope of your business. So this is always main and biggest pain point of the industry. So going away with these, it will really help the industry and I think it will also make the crypto markets more active in Hong Kong because a lot of crypto exchanges outside Hong Kong International crypto exchanges, they may now reconsider to come back to Hong Kong.
Walter Jennings: And just for our audience of professional investor in Hong Kong is defined as assets under investment of 8 million HK$ are about 1 million US$. And that is purely cash and equities, not including housing or crypto or anything. So that is a limited market. But now it appears to be opening up.
Clara Chiu: Yes. But of course, we have some procedure to follow. That's why the SFC have to conduct a public consultation first and hopefully, you know, all the other views gathered by the SFC will be supportive to this idea, then we will very likely to be able to open these cryptomarkets to retail. And then the second message that the SFC announced or deliver yesterday was that the SFC now settle, or in fact has set out a clear way for the industry to apply for authorization of crypto futures ETF offering to retail in Hong Kong.
Walter Jennings: ETF meaning exchange traded funds, that would be a fund that invests in crypto underneath and those can now be sold and traded.
Clara Chiu: Yes, exactly what you have explained it very clear to them. Very, very good. And then for that, what I will say is that from this new initiative from the SFC, what I see is you can see kind of like a change of stance or attitude of the SRC because in the past, the SFC was still considering there was for crypto assets, there are a lot of risk there. This product may not be suitable for retail, retail investors.
But now for these initiatives, the message I think, underline, for these initiatives is that, okay, now after some of these few years, the SFC is confident that we have enhanced regulations, they could manage the risk of these virtual assets and let this kind of new asset class to be available to more investors in Hong Kong.
Walter Jennings: Yeah, I will say that, when there is a public consultation by the SFC, please, if you have an opinion submitted, they are all read and they are all responded to so whether you're in favour or you're on the fence or you're against it, it's really important to share your voice.
Clara Chiu: Yes, exactly. And then there's a stop message there, SFC deliver yesterday was that they would provide further guidance on STO's security token offerings. And for that, I think, is very good, because as I just mentioned at my opening, you know, sometimes time we got from them missimpression or message from the industry that the SFC in fact not so supportive to STO projects in that is not the case. For example, in 2019, in fact, the SFC issued a circular saying for STO activities in Hong Kong, you could really conduct it here. But you have to make sure that all your investors, professional investors, and then you're also working with a licenced brokers in Hong Kong to help you to distribute those security token.
And vote yesterday, the SFC also further clarify that for those traditional financial instruments, if you are going to wrap it in a virtual asset form, for example, you are utilising the blockchain so as to make your financial instrument to be paperless then that the current additional regulatory requirements applicable to virtual assets, in fact, are not applicable to these. So for issuers on this kind of product, they can be not very sure about, you know, have to comply with additional virtual assets requirements.
So I think it is also a good news and for me, I'm always a firm believer as to regulatory clarity. So I guess now, the SFC come out to provide further guidance to clarify some regulatory issues, it will really have the heavy development of the crypto assets market.
Walter Jennings: Now, Clara, if you were still at the SFC, what are the regulatory changes that would you push forward?
Clara Chiu: Very good question. Let me see. Now, you know, we have the possibility of opening up to the retail market, which, which I think is the big thing. And then some further guidance on STOs. The another thing I probably would like to push forward is about crypto derivative area. Because now under the existing regulations, if you're licenced Hong Kong predicts change, you are not allow to do any trading or issuance of any crypto derivatives. But as author you must be aware, if you cannot do lending, borrowing or crypto derivatives on your exchange, and you can only do you spot crypto, spot trading. In fact is not very commercially viable.
Walter Jennings: Yeah, so a derivative might be a future contract, it might be a short contract, where you're able to I guess, use your money to hedge against where it might be going. So those are the types of crypto derivative products you're talking about.
Clara Chiu: Yes. And then I, from time to time, I really liked those people who create these kind of products, because it's very creative. And then they also can provide more choices for investors to invest in different form different kind and then you have different maturity period are these so yeah, exactly, we are talking about the kind of product.
So I will also push that maybe the SFC will consider , should consider whether allow some market participants to create and trade these kind of derivatives. I fully understand that for these crypto derivatives, some of them are really high risk. So what I'm thinking is we could not just say okay, all these derivative products should be over the retail. I guess derivative crypto derivatives is just a generic term.
So maybe we can have some kind of classification like some very high risk credit derivatives should only be offered to institutional professional investors, but some of them in fact, not so high risk, maybe retail could also be accessible to them.
Walter Jennings: There are ways of qualifying the client to make sure it suits their needs. Now, what are your views and outlook for Hong Kong's virtual asset market?
Clara Chiu: For Hong Kong, you know, we have one of the world's most active and liquid security markets and one of the world's most active IPO market as well. So with all these, you know, reasons, announcements by the government and also regulatory changes, I am very, very positive to Hong Kong. We are a market virtual assets market.
And I think Hong Kong has a very robust regulatory system. The regulators are open minded and receptive to new ideas, and they are also willing to address to the industry's concern. And with the support of the governments, I think virtual assets market in Hong Kong would grow and flourish and see how in the next few years, definitely.
Walter Jennings: Thank you so much for your 14 years of service in the SFC and also for sharing with us the insights on regulation in the proper approach for STOs and other projects. Folks who want to find out more about you can look at your new firm QReg advisory consulting company, offering services to clients in the FinTech and crypto assets sector. So thank you so much for being a guest on Waves in the Finoverse.
Clara Chiu: Thank you. I enjoy very much talking to you.
Walter Jennings: I did too and enjoy Hong Kong FinTech week. Thank you.
