The Payment Systems and Stored Value Facilities Ordinance defines an Stored Value Facility (SVF) as “storing the value of an amount of money“. ‘Money’ in the Ordinance refers to “money in any currency […] or any declared medium of exchange”. Interestingly, the “declared medium of exchange” does not have a fixed definition and, according to the Ordinance, it is for the HKMA to publish in the Gazette whether it declares “a thing to be a medium of exchange” (Section 2C).
With this broad definition of stored value, it is feasible to envisage a digital currency SVF being built in Hong Kong.
By contrast, in the EU, regulators struggle capturing digital currency financial institutions into the Electronic Money Directive (EMD) because the latter (as currently being interpreted) envisages only electronic representations of ‘fiat’ (sovereign) money as being the scope of EMD.
In addition, authorities such as the EBA are actively discouraging regulated institutions from handling digital currency. In its latest report it wants to enforce a prohibition on regulated firms dealing with digital currencies.
In HK, digital currencies are considered ‘virtual commodities’. As such it is not inconceivable for the HKMA to publish in the Gazette that digital currencies are indeed a ‘medium of exchange’.
If so, custodian digital currency wallets handling private keys of customers would ostensibly fall within the definition of an SVF.
Further an SVF licence already includes permission to conduct ‘money-changing’ activities. If HKMA considers digital currencies as a ‘medium of exchange’ then, most likely, the SVF regime will become a comprehensive licence for digital currency exchange operators.
It remains to be seen whether HKMA would be willing to extend its scope to capture the global digital currency market.
In Singapore, MAS is currently in a consultation phase to consolidate their payment services regulations. They envisage a single regime for payments/electronic money with varying permissions for licence holders and have suggested ‘virtual currency intermediation services’ as a licensable activity.
As the HK licensing regime is live, active discussions can be had with the regulator to determine the general appetite to capture the digital currency ecosystem. An encouraging sign is the launch of the new fintech Sandbox under the supervision of HKMA and the HK Fintech Hub with ASTRI. In addition, the Sandbox description provided by HKMA expressly invites fintech solutions to the Sandbox that try to “utilise the blockchain or distributed ledger technology”.