This November, HashKey Group received virtual asset licences from the SFC in Hong Kong. Their exchange, HashKey Pro, is ready for institutional clients. Walter Jennigns caught up with his old boss at Hong FinTech Week - one week before the announcement - to find out if regulation is the right destination for Hong Kong.
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 wavemakers 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 back. I'm Walter Jennings, your host of waves in the Finoverse. And I'm joined today by Michel Lee, Executive President of HashKey Group. Welcome, Michel.
Michel Lee: Great to see you, Walter. Yeah, good to see you again.
Walter Jennings: And tell us a bit. For those who are listening, who may not be familiar with HashKey Group, you're one of the first to get the coveted licences in Hong Kong. But tell us a bit about HashKey Group.
Michel Lee: Great, I'm very happy to do so. I mean, HashKey Group, it's a pan Asian group. We have operations in Hong Kong. We headquartered in Hong Kong, our offices in Singapore, Tokyo as well as Shanghai, the group really had a very long route in terms of investment across the whole blockchain, crypto, Web3 space. Over the last few years, we are funded by largest investors in the space in Asia. And also in Hong Kong, we are now applying for all various licences. We already have licence around crypto asset management, as well as the soon to be launched exchange licence.
Walter Jennings: I know that the HashKey Group licensed for exchange had been in process, what were the updates this year for you?
Michel Lee: I think this year, the big thing for us is really focusing on the next generation of technology. Obviously, as we work towards a launch very shortly, a lot of the trading technology and a lot of that more fundamental exchange related technology has been developed for some time. But on top of it, we're actually pushing quite a bit more in terms of having being able to create more value for users.
One particular area that we're working with, I think various regulators and also internally and also with various experts in the field is around enhancing disclosures, transparency around the products that we have, as we all know, on a stock market of stock exchange at the moment, you're highly relying on auditors, lawyers to do sort of semi annual / quarterly reporting, while on the blockchain, a lot of the data is already real-time and on some of these very popular blockchains. At the moment, a lot of the business activities going on the chain is can actually be analysed on a day by day basis. So we're building some tools around that.
So going forward, I think if you had equity analysts, you have to spend so much time digging out information will hope that we'll have tools that would allow I think, future investors to really have a much better handle around the the underlying assets using technology.
Walter Jennings: So instead of waiting for the quarterly report, you can monitor it real-time on the chain.
Michel Lee: That's right. That's something we're we're striving to. Obviously it's a lot of work, but a lot of data analytics that's going on. So that's something we're very focused on. I think the other big thing for us is really around pushing the boundary. I think the technology is developing extremely quickly. I think KYC AML continue to be a very big focus for regulators. And in the more and more decentralised world we're already hearing on noises around DeFI how to do KYC AML and DeFi. So we're actually using various more cutting edge technology around that, using D ID - digital identity or distributed identity.
Most recently, we have been really working with the Ethereum technology. They have this new concept of a new... not really that new. But there's been some further development around a whole POAP app, proof of attendance protocol, which is extremely useful for knowing your client, knowing your counterparty and what actually work at some universities at the moment. So as seriously as proof of attendance we attend o'clock, you get an NFT that actually record your attendance is. It's just fun for students, right. And it's a bit better than sort of doing a sign in sheets.
Walter Jennings: Well, I would love it, my son is attending university in The Hague. And if I saw his POAP app every day, I'd be a much more comfortable. Now, earlier in the year, I understand HashKey group received approval in principle. And really, in the interest of full disclosure, I'd been a former colleague to Michel and assistant during some of the communications. But tell us what that AIP means and what are next steps.
Michel Lee: Yeah, I think it's very exciting times, given the announcement yesterday, and I think we've seen the regulators in Hong Kong really taking a very thoughtful and stepwise approach to the whole crypto regulations. I think starting from next year, there will be a full licensing regime where security token and utility token would require full licensing. And I think we obviously be one of the first movers, so to speak, have spent our time really investing in our license.
And I think we should be launching our exchange very, very soon. And the timing of this is great. And that from March next year, I think you really need to have invested in these licences, in these regulatory and also technology infrastructure that meets a certain standard, a pretty high standard to operate. I think this is going to propel on future growth for the industry in Hong Kong, as we're seeing in the US, in Singapore regulations or becoming tighter. Whereas in Hong Kong, I think the regulation has already reached a certain level. And I think regulators, as we saw yesterday, have now felt that okay, the work has been done. The market understands what needs to be done in terms of investment protections in terms of ensuring conflict of interest and AML KYC are done properly. They're now in a position to relax a little bit to allow more innovation.
So in some sense, you can argue Hong Kong is moving slightly in a different direction, but I think they're taking a very long-term approach to this, which is great.
Walter Jennings: Now, you mentioned yesterday's news, and I think we'll dive into that in a second. But prior HashKey would have received a licence for professional investors and institutions alone. Professional investors about 8 million Hong Kong dollars under active management cash equity only, not crypto, not housing. Yet yesterday's news provides an opportunity perhaps for retail. Can you help us understand the announcement made yesterday?
Michel Lee: I personally I mean, I've been keeping an eye on a lot of this discussion in election etc. I think it is a very logical outcome or I'm expecting a pretty logical outcome, which is, as the regulations get put in place, and from March next year, there'll be I think these platforms should be safe enough for more participation from the wider public.
And I think Hong Kong investors are very sophisticated. And I think a large number of retail investors are already invested in digital assets. And with the new rule that you cannot not let them trade or ask them to go offshore and trade with an unregulated machine. I don't think that's fair from Hong Kong user standpoint. So yes, I understand that there will be consultation that coming through is all part of the legislative process. So yeah, very positive direction.
Walter Jennings: Now, when we think of an exchange, obviously, we think of it as a place to buy and sell digital assets, maybe get spot price on a ripple or some forms of contract. But then there are the security tokens, which are equivalent, in some ways to an IPO or an offer of share. However, the token is a little bit different and aimed at different asset classes. Can you help us better understand security tokens?
Michel Lee: Sure, sure. I think it's such a new space, everyone is learning on a daily basis. But the way we look at it. I think, obviously, we, a lot of us understand Bitcoin has been around for a long time as a store of value, kind of similar to digital gold, then you have Ethereum, which is really a network and the that allow smart contracts and programmable tokens. Now I think what's happening that we're seeing the third wave, which is the whole Web3 phenomenon.
Where a lot more use cases based on blockchains are coming out. I mean, I love NFT, I love the GameFi, love to things that are... I mean, you see a lot of consumers, companies really moving into the space to monetize a brand on that side to data monetize that users sort of experience, and loyalty. And I think that's the area where you really blockchain is moving beyond just a store of value, or just the network, now is really becoming a part of, I think, the economic activities, and maybe in a digital format. But a lot of the things that happen digitally, will be recorded on the blockchain and turned to essentially the value is captured and become an asset.
And that ability to trade those asset is going to be important. So I think historically, your stocks and bonds paper base, very simple contract, which is saying a bond is you get paid back and you get interest, that's pretty much it. A bond, sorry, equities, you own company, and you get dividend. And that's kind of it. But going forward using these contract, you can be a lot more sophisticated. And that's where I think, for example, yeah, ownership rights of data, or more complex, or more sophisticated way of controlling the value will become apparent. And that's where I think a lot of the security token or whatever you call it, right, the STOs,new token, stakeholder economy. That's a lot this excitement is about condensing.
Walter Jennings: You also mentioned utility tokens. And as an example, Ethereum is a utility token that allows you to write and conduct work on the ether network. Will we perhaps one day see a hash key utility token available?
Michel Lee: We'll see. I would... I'm very excited to find out.
Walter Jennings: Well, it's you build your exchange that would allow people to conduct transactions on that chain? What have you been seeing on the floor of FinTech week hearing in the various sessions that's kind of captured your attention the last two days?
Michel Lee: I think, the focus again on technology on FinTech. It's just as huge again, which is great, I think, to have been really, a lot of us has really been distracted by COVID by a lot of bad news in the world. It's great to be together again and refocus. And I think, obviously, the government, the regulators have sort of done a very good job just sort of resetting the goals.
Now the goals are reset. Now it's about execution. And this is the bit that we can't fail at a lot of it is about okay, these new rules are getting implemented. Are they implemented the right way? Are they going to execute it the right way? Ultimately, this is and users have to be attracted back into Hong Kong. Yeah, so it's a very dynamic marketplace where we're living at a very dynamic time. So I think the challenges is in front of us. But it's great that we're now all moving in the right direction.
Walter Jennings: Now we've covered off your exchange HashKey Pro, but you also have a quasi venture capital, firm, HashKey capital, how was their year been and how's the business going?
Michel Lee: I think that this has continued to be flourishing, fundraising, institutional investor interest that's just really has grown exponentially over the last two - three years. And we are we actually now also a full licences in both Hong Kong and Singapore to master secondary crypto assets. So that's another big major goal for our group. Well, which I believe would also be in line with the plans in Hong Kong around developing the asset management industry, the wealth management industry.
We've had some very, very exciting discussion over the last few days on potential sort of new product launches, tie ups. Yes, it's just a lot going on, I think, on the asset management space. And I think timing wise also, is it not a bad time to invest, is actually a great time to invest.
Walter Jennings: It's a challenge as a leader to figure out not only where you invest your time, but where you choose not to invest your time, and there's so many opportunities at the moment, how do you kind of direct your attention to make sure you're focused on what matters most?
Michel Lee: That's a tough question. But I think, at this point in time, we've chosen to be I think, a few areas, right that that is our core competence. As mentioned, the asset management business, the whole trading platform, exchange platform business, which really would bring a lot of value into the new listing, right, bringing new projects, you can see a lot of synergy between the two. And then this third area where we have also invested very heavily in very laser focus as well as rather technology. And that's the area where you really have to pick the two or three areas where you see impact. Yeah, for example, one thing really, I think, historically, we've done well is really choosing between proof of work versus proof of stake.
And I think you really have to make one or two right decisions, I think we have really focused around developing our expertise around proof of stake, and now we are the largest sticking providers in the region. And then we're now focusing on more other things such as, as mentioned earlier, some of the disclosure technology, some of the data analytics, as well as KYC related technology. So that is actually yeah, it's not easy. But it just requires, I think, some trial and error in many ways as well.
Walter Jennings: Well, as a big fan of Hong Kong, it's great to have a Hong Kong exchange here in the digital acid sphere. Wishing you all the best of success with HashKey Group and thank you for being a guest on waves in the universe.
Michel Lee: That was always a pleasure. Thank you.
Walter Jennings: Thank you.
