Hong Kong virtual banks eye Web3 growth despite regulatory hurdles

Hong Kong’s virtual banks are reportedly at a critical juncture. They currently capture only a small fraction of the financial market and hold 0.3% of the assets of all retail banks.

According to the South China Morning Post (SCMP), HK legislator Johnny Ng Kit-chong, a supporter of cryptocurrencies, believes that virtual banks can do more to serve Web3 companies.

“The government has made efforts to develop virtual banks and upgrade services in the past few years [...] it’s an important time for the city to contribute more to the Web 3.0 sector in the next two years.”

Challenges faced by HK virtual banks

One of the major barriers facing HK virtual banks is their difficulty opening accounts for companies that want to expand into cryptocurrencies, non-fungible tokens (NFTs), and blockchain technology.

According to the SCMP reporting, a recent survey highlighted that 40% of these companies reportedly find the process “extremely hard,” citing locational and “strenuous standards” as two frequent challenges.

These challenges have reportedly driven some businesses to relocate to more accommodating regions, a trend that could be counter-productive for HK digital innovation.

Progress in the face of adversity

Despite the challenges, Ng expressed optimism, reportedly emphasizing the “enormous” potential for virtual banks if given a clear governmental blueprint for Web3 development.

Mox Bank, owned by Standard Chartered, launched a crypto exchange-traded fund (ETF) to become the first virtual bank in HK that facilitates transactions in spot Bitcoin (BTC) and Ether (ETH) ETFs.

Barbaros Uygun, chief executive at Mox Bank, is said to have stated that the bank plans to further expand into emerging sectors and offer new digital investment opportunities for customers.

HK legislator looks to BTC for fiscal reserves

On July 28, Ng announced collaborative plans with stakeholders to assess the potential benefits of BTC incorporation into the special administrative region’s financial reserves.

In an X post, Ng highlighted the importance of considering BTC integration in strategic reserves to benefit HK’s economic framework under the right regulatory conditions.

Dubbed “digital gold,” Ng emphasized BTC’s potential to hedge against inflation as global recognition of the asset increases due to its perceived value.