HK Securities & Futures Professionals Association - Submission on the 2026 Policy Address

Submission on the 2026 Policy Address

Release Date: 2026-08-04

Policy Address Team, Chief Executive's Policy Unit,	Email Submission:
26/F, West Wing, Central Government Offices	policyaddress@cepu.gov.hk
2 Tim Mei Avenue, Tamar,
Hong Kong

4 August, 2026

To: Mr. John Lee, Chief Executive

Submission on the 2026 Policy Address

Consolidate, Innovate, Connect – Policy Blueprint for Hong Kong as a Global Financial Hub 2026

Introduction

As Hong Kong embarks on its first Five-Year Plan and charts the course for the next phase of development, the 2026 Policy Address represents a pivotal moment for the city's financial services industry. Against a backdrop of intensifying global competition, rapidly evolving technology, and shifting geopolitical dynamics, Hong Kong must not only consolidate its traditional strengths but also embrace transformation with vision and resolve. The Government has rightly emphasised the need to "strive for the economy, promote development, and enhance the well-being of citizens", while leveraging Hong Kong's unique advantages under "One Country, Two Systems" to strengthen its status as an international financial centre.

The Hong Kong Securities and Futures Professionals Association (HKSFPA), representing the voice of the industry, submits this comprehensive set of policy recommendations for the 2026 Policy Address. Our proposals span the full spectrum of financial services, from spot market reforms and asset management to virtual assets, green finance, commodity futures, compliance and anti-money laundering, as well as digital finance and fintech development. We have structured our recommendations around a clear vision: to enhance market efficiency and liquidity, lower operational costs for market participants, foster innovation and diversification, strengthen regulatory frameworks with proportionality, and deepen Hong Kong's role as a "super connector" and "super value-adder" in the global financial system.

At the heart of our recommendations lies a steadfast commitment to safeguarding the diversity and resilience of Hong Kong's financial ecosystem. Our Association believe that a thriving financial centre is not built on a handful of large players alone, but on a vibrant and pluralistic community of financial institutions, from global investment banks to local brokerage firms, from established asset managers to fintech startups. It is this diversity that underpins Hong Kong's adaptability, its capacity for innovation, and its enduring appeal to investors from around the world.
As we align with the national "15th Five-Year Plan" and position Hong Kong for the next decade and beyond, we urge the Government to adopt a bold yet pragmatic approach, one that balances development with security, embraces technology while managing risks, and opens doors to new markets while deepening existing ones. The following recommendations represent the industry's considered views on how Hong Kong can not only maintain but elevate its status as a premier international financial centre.

Spot Market

Enhance trends in international financial markets

Shortening the Settlement Cycle as a Global Trend

Shortening the stock settlement cycle is a clear trend in international financial markets. Hong Kong currently operates on a T+2 basis, but with the advancement of settlement automation, real‑time payments, and risk management technologies, many major markets have already adopted or are studying shorter cycles. China, India, and the United States have successfully implemented T+1, while the UK, Switzerland, and the EU are actively evaluating or preparing for similar changes. For Hong Kong, moving quickly to T+1 is not only a necessary step to align with global practices but also brings tangible benefits: it significantly reduces counterparty exposure, lowers systemic settlement risk, and enhances market resilience; it accelerates capital and securities turnover, improving capital efficiency and attracting institutional investors, hedge funds, and quantitative traders, thereby boosting trading volume and market depth. Coupled with a moderate reduction in transaction tax to lower trading costs, this reform will further amplify Hong Kong’s attractiveness and market activity. More importantly, T+1 will act as a catalyst for modernizing Hong Kong’s settlement systems, driving automation and real‑time risk controls, and fostering innovative liquidity and clearing products, reinforcing Hong Kong’s role as a hub for global capital flows. At the same time, short‑term transaction tax relief can ease transitional cost pressures and ensure a smoother adjustment period.

Reducing Settlement Risk

First, halving the exposure period directly reduces the likelihood of cascading defaults. Central clearing houses and settlement institutions will need to deploy fewer emergency funds and resources to handle defaults, thereby reducing systemic shocks and the need for public fiscal intervention. With lower settlement risk, regulators may also consider modest reductions in transaction‑related taxes or fees, further easing the long‑term cost burden on market participants. Second, fewer defaults mean clearing systems can adjust capital and liquidity buffers downward, saving operational costs and reallocating resources to more effective risk monitoring and technology upgrades. Third, investor confidence will rise as settlement risk falls, encouraging foreign capital inflows and larger allocations in Hong Kong, reflected in higher trading volumes, improved liquidity, and narrower risk premiums. Shorter exposure also improves hedging efficiency between derivatives and cash markets, reducing basis risk and cross‑market exposures. Overall, T+1 enhances resilience and regulatory visibility while delivering long‑term cost savings, capital efficiency, and stronger investor confidence. Targeted transaction tax incentives can accelerate capital inflows and market activity, making the benefits of reform more immediate.

Enhancing Market Efficiency and Capital Turnover

Moving from T+2 to T+1 will significantly improve efficiency and capital turnover: shorter capital and securities holding periods increase turnover rates, allowing institutional investors, hedge funds, and high‑frequency traders to deploy capital more flexibly and recover returns faster, thereby improving efficiency and lowering holding costs. Settlement failures and delays will decrease, spreads will narrow, and liquidity will improve. Brokers and market makers will face less pressure from long‑term capital lock‑ups, reducing financing costs. A shorter cycle will also drive automation and process optimization, reducing manual errors and operational risks, and improving reliability. At the macro level, faster turnover will attract more capital and institutional allocations, deepening the market and boosting trading volumes, strengthening Hong Kong’s competitiveness in regional and global capital markets. If transaction tax rates are adjusted in line with efficiency gains, trading friction will be further reduced, encouraging sustained activity and expanding the tax base.

Strengthening International Competitiveness and Attracting Foreign Capital

Aligning Hong Kong’s settlement cycle with global markets will significantly enhance its appeal to cross‑border capital and institutional investors. With settlement efficiency on par with major markets, foreign institutions, hedge funds, and quantitative traders can reduce time lags and operational frictions, lowering costs and complexity, and increasing their willingness to trade and allocate in Hong Kong. Trading volumes and market depth will rise, spreads will narrow, liquidity will improve, and pricing will become more representative and stable. A shorter cycle also encourages financial innovation, such as real‑time clearing services and short‑term financing products, attracting fintech development and professional services to cluster in Hong Kong, expanding the local financial ecosystem. In the long run, these changes will strengthen Hong Kong’s role as a regional capital hub, enhance its appeal to international issuers and investors, and bring more stable capital inflows, a broader tax base, and new employment opportunities. In this process, calibrated transaction tax adjustments can serve as a complementary tool to attract foreign capital and stimulate market activity, with long‑term trading growth offsetting short‑term tax changes.

Driving Financial Infrastructure Modernization

The shift to T+1 provides a critical opportunity to modernize Hong Kong’s financial infrastructure: central clearing systems, brokers, and settlement institutions will accelerate adoption of real‑time or near‑real‑time settlement, straight‑through processing, and standardized APIs, greatly improving speed and accuracy while reducing manual intervention and errors. Market participants will adopt advanced collateral management tools, dynamic margining, and centralized collateral pools, improving liquidity allocation and lowering funding costs. Risk management upgrades will strengthen real‑time monitoring, early warning, and stress‑testing capabilities, enabling regulators and participants to respond faster to anomalies and enhancing resilience. Modernized infrastructure will also improve cross‑border interoperability and standardization, supporting Stock Connect, derivatives hedging, and cross‑market clearing, while attracting fintech innovation and professional services to Hong Kong, driving employment and industry upgrades. Overall, infrastructure modernization is not just a technical upgrade but a long‑term investment in efficiency, risk reduction, and competitiveness. During this upgrade, temporary transaction tax incentives can ease transitional costs and encourage faster adoption of new systems.

Lowering Long‑Term Costs and Enhancing Transparency

The long‑term benefits of T+1 in cost reduction and transparency go beyond fewer default expenses. Shorter exposure means central clearing houses and settlement institutions can lower capital and liquidity buffers, reducing fiscal risks of systemic bailouts or emergency liquidity injections. Fewer defaults also mean lower legal, insurance, and reserve costs, translating into reduced clearing fees and operational expenses. More frequent settlements drive stronger real‑time monitoring, reporting, and data sharing, improving regulatory visibility and risk detection. Richer, timelier data enhances stress testing and scenario analysis, reduces information asymmetry, and strengthens market discipline. These improvements spill over into repo, financing, and derivatives markets, reducing basis and counterparty risks, further lowering costs and improving capital allocation efficiency. Overall, T+1 reduces potential fiscal burdens, strengthens transparency, and boosts investor confidence, attracting long‑term stable capital inflows and delivering sustainable cost savings and structural improvements. With targeted transaction tax adjustments, Hong Kong can stimulate market vitality without undermining long‑term revenue, accelerating the economic benefits of reform.

Optimising the Fee Arrangements for Small and Medium-Sized and Overseas Securities Firms to Access Real-Time Market Data

Hong Kong ranked third globally in the latest Global Financial Centres Index (GFCI 39), underscoring its continued strengths in institutional foundations, market depth, and professional services as an international financial centre. In recent years, the Policy Addresses have repeatedly emphasised Hong Kong's role as a "super-connector" and "super value-adder," with a commendable focus on facilitating connectivity between mainland and overseas capital and the Hong Kong market. However, beneath these macro-level policies, a number of small and medium-sized licensed corporations and overseas-licensed institutions (hereinafter "SME and overseas brokers") still bear fixed costs for accessing real-time market data that are not necessarily proportionate to their business scale—an issue that warrants close attention.

Even after obtaining a Type 1 regulated activity licence from the Securities and Futures Commission (SFC), brokers must still secure separate approval from the Stock Exchange of Hong Kong (HKEX) to become Exchange Participants. In terms of financial resources, the SFC already requires licensed corporations to maintain a minimum liquid capital of approximately HK$3 million as a prudent buffer to cover around 6 to 12 months of operating expenses and potential losses, a requirement that itself constitutes an effective risk defence line. However, industry understanding suggests that for a broker to further become an Exchange Participant on top of this, an additional capital outlay of around HK$30 million is often required, ten times the aforementioned regulatory requirement. This sum is far beyond the means of most SME and overseas brokers, leading many to opt to operate as non-participants.

Licensed brokers that are not Exchange Participants must rely on existing participants, information vendors, or other commercial arrangements to obtain trading access, real-time quotes, and related market data. Consequently, their service costs and pricing flexibility are subject, to a considerable extent, to third parties. Whether real-time quotes can be obtained at a stable and reasonable cost directly affects investors' trading experience, client trust, and the overall competitiveness of the broker.

Among the most noteworthy issues is the minimum fee arrangement for real-time data services. According to HKEX's published market data fee schedule, the "Third Party Service" for real-time securities market data carries a minimum subscriber fee of HK$6,000 per client per month (hereinafter the "minimum monthly fee"). Crucially, Exchange Participants are exempt from this fee, meaning it effectively applies only to licensed brokers that are non-participants. In other words, for the same data and the same use, an institution is charged a fixed fee unrelated to actual usage, solely because it is not a participant. For SME and overseas brokers with a limited client base that are still building their market presence, even if actual usage is low, this expense directly constrains their operational capacity, technology investment, and marketing efforts. Viewed alongside the capital requirement for participant status, the current arrangement objectively creates a dilemma: a broker wishing to provide real-time quotes to clients must either commit substantial funds upfront to become a participant, or bear a long-term minimum monthly fee disconnected from usage—both of which are onerous choices for institutions of limited scale.

From a policy perspective, real-time quotes are not a mere commodity but rather fundamental information for the functioning of the securities market, forming part of the market infrastructure. The objective effect of the minimum monthly fee is to create a cost barrier at the market entry point that is unrelated to usage: the smaller the institution and the newer the entrant, the heavier the relative burden. Industry observations suggest that some overseas institutions and newly established brokers have adopted a wait-and-see attitude toward accessing the Hong Kong market as a result, or have scaled back to offering only delayed quotes to clients. Either way, the ultimate impact is on the quality of service received by investors and the external accessibility of the Hong Kong market. This clearly creates tension with the Policy Address's objectives of broadening market depth, attracting international capital, and strengthening the "super-connector" role. The premise of "connectivity" is open access, and it is precisely the overseas institutions and SME brokers that most need to be connected that are most sensitive to this fixed fee. Market vitality depends not only on major investment banks and the Stock Connect mechanisms, but also on a diverse and flexible brokerage ecosystem that offers more tailored and choice-driven services to different types of investors.

To be fair, the Exchange's charging for market data naturally takes into account system maintenance, information licensing, and commercial sustainability considerations. This article does not call for free data provision, nor does it intend to question HKEX's need to invest in market infrastructure. Indeed, fees calculated on a per-subscriber or per-usage basis directly reflect users' actual consumption of system resources, are clear in principle, and should be maintained. By contrast, the minimum monthly fee is quite different in nature: it is decoupled from actual usage, and participants are fully exempt. Even taking into account that participants already contribute to the Exchange through trading and other fees, retaining a fixed fee unrelated to usage solely for non-participants raises questions as to its cost basis and proportionality. Moreover, data and connectivity services are relatively stable revenue streams for HKEX, and the minimum fees from low-usage brokers are likely to account for a limited share of total revenue. Yet for individual SME and overseas brokers, that very same fee could be the decisive cost factor in whether they can establish a foothold in the Hong Kong market. If a fee is neither necessary for cost recovery nor material to the Exchange's revenue, yet its primary effect is to increase the burden on the smallest participants, then whether it should continue to exist in the fee structure, and in what form, merits serious joint review by the authorities and HKEX. One direction worth exploring is to more fully realign data fees with the principle of "charging based on actual usage," supplemented by a prepaid credit arrangement whereby brokers deposit funds in advance, which are then automatically deducted monthly on a per-use basis and topped up when balances run low. Such an approach would both safeguard the Exchange's revenue collection and administrative efficiency, and ensure that fees are proportionate to usage, with institutions of different sizes paying according to what they actually consume—inherent fairness being thereby achieved.

In light of the above, this article recommends that the Government, in the financial services agenda of the 2026 Policy Address, coordinate with HKEX and the SFC to advance work in three areas regarding market data fee arrangements: First, conduct a systematic review of the actual impact of the minimum monthly fee on SME and overseas brokers, including understanding how many institutions have delayed or abandoned access to the Hong Kong market as a result. Second, study the feasibility of replacing the current minimum monthly fee arrangement with a purely usage-based charging model (supplemented by a prepaid credit mechanism), and consult the industry on transitional arrangements—for example, phased reductions in fee levels or the provision of waiver periods for newly established brokers. Third, incorporate market data fees into a regular review mechanism to continuously assess their impact on the ability of overseas institutions, SME brokers, and new market participants to access the Hong Kong market. As for the admission threshold for Exchange Participants, that involves broader market structure and risk management issues and could be reviewed separately; this article focuses first on market data fees, where action is more immediately operational and likely to yield quicker results.

It must be emphasised that our Association recommendations are not aimed at undermining the Exchange's legitimate revenue, still less at lowering regulatory requirements, but rather at making the charging model for market infrastructure proportionate to actual use and aligned with Hong Kong's policy direction of external openness. Should the authorities and HKEX review and optimise the current arrangements in this direction, the impact on the Exchange's overall revenue is expected to be limited, yet it would send a clear signal to the international market: Hong Kong welcomes not only large institutions, but also values the room for diverse participants to thrive. This would help Hong Kong, on top of its existing institutional strengths, to fill a quiet yet critical link in its market infrastructure, providing more solid support for its "super-connector" role.

Antitrust and Anti-Unfair Competition Measures

The Association believes that the foundation of Hong Kong's financial securities industry lies in its local small and medium-sized brokerages. Facing the dual pressures of market structure transformation and large-scale leading platforms leveraging their capital advantages to engage in price monopolization, the SAR Government urgently needs to introduce targeted assistance measures and policies to safeguard fair market competition, so as to prevent a wave of industry closures and maintain market diversity.

Local small and medium-sized brokerages have long served the general public and small and medium-sized enterprises in Hong Kong, acting as a vital cornerstone in preserving the diversity and stability of the local financial ecosystem. However, in recent years, market turnover has become highly concentrated. Certain leading internet-based brokerages with mainland Chinese backgrounds, backed by substantial capital, have resorted to aggressive price wars, including zero-commission models, resulting in de facto price monopolization that severely squeezes the survival space of traditional local small and medium-sized brokerages. To this end, this submission focuses on "upholding fair competition, supporting traditional brokerages, and easing burdens through technology," and puts forward the following targeted recommendations to the Government:
Adopt antitrust and anti-unfair competition measures against price monopolization by leading platforms

Review vicious price competition in the securities industry: The Association suggests that the Competition Commission and the Securities and Futures Commission (SFC) intervene to study the long-term harm to the local financial ecosystem caused by predatory pricing practices, such as "zero commissions," "zero platform fees," and "zero interest rates", employed by large internet brokerages through subsidies. Guidelines to prevent price monopolization should be formulated to ensure that small and medium-sized brokerages can compete in a fair business environment.

Subsidize improvements in cybersecurity protection

Establish a dedicated matching fund for cybersecurity: As cyberattacks and fraud become increasingly frequent, regulatory requirements for brokerages' system security continue to rise. Our Association recommends that the Government launch a "Cybersecurity Upgrade Subsidy" exclusively for small and medium-sized brokerages, with a funding ratio of 80% from the government and 20% from the enterprises. This would assist the industry in adopting high-performance firewalls, encrypted communications, and conducting regular system vulnerability scans, thereby effectively alleviating the heavy financial pressure on brokerages regarding information technology (IT) defenses.

Waive specific license annual fees for small and medium-sized brokerages

Directly waive core license administrative fees: Small and medium-sized brokerages are still required to pay various fixed regulatory expenses even during market downturns. The Association urges the SAR Government to implement long-term relief measures by fully waiving specific SFC license annual fees, HKEX terminal usage fees, and related registration costs for local small and medium-sized brokerages, providing the most direct form of support to these brokerage firms.

Subsidize training for practitioners in new skills

Provide dedicated subsidies for upskilling in new competencies: In light of the rapid development of FinTech, Web3 digital assets, and ESG green finance, traditional securities practitioners are in urgent need of transformation. The Association recommends that the Government provide full training subsidies for current brokers and back-office staff at small and medium-sized brokerages, enabling them to enroll in new financial technology courses. This would enhance the industry's overall competitiveness and prevent the outflow of local financial talent.

Further reduce or waive stamp duty on stock transactions

Lower transaction costs to activate the retail market: High transaction costs dampen retail investors' willingness to enter the market, directly impacting small and medium-sized brokerages that rely mainly on local clients. The Association recommends that the Government further reduce stamp duty on stock transactions based on the current rates, or even implement a phased exemption for intraday short-term trades or penny stocks. This would rejuvenate market turnover and increase commission income for small and medium-sized brokerages.

Review handling fees and regulatory levies

Optimize the fee structure to reduce industry burdens: Our Association calls for a comprehensive review of current miscellaneous securities transaction fees, including reducing or optimizing the levy structures of HKEX and the SFC. For small-value retail trades executed via small and medium-sized brokerages, fee reductions or exemptions should be provided. This would help small and medium-sized brokerages attract clients with more competitive cost advantages, breaking the current deadlock of market monopolization by internet giants.

Conclusion

The prosperity of Hong Kong's securities industry is by no means tied solely to a few giants; rather, it is rooted in the loyal service and professional dedication that hundreds of small and medium-sized brokerages provide to local clients day in and day out. These local brokerage firms are not only crucial providers of market liquidity but also tangible embodiments of the "personal touch" and "flexibility" inherent in Hong Kong's financial culture. Should well-capitalized leading platforms be allowed to erode the market through predatory pricing, the ultimate casualties will be not only the industry's diverse ecosystem but also the long-term choice rights of the broad investor base and Hong Kong's resilience as an international financial center.

Our Association earnestly calls on the SAR Government to face up to the critical state of the industry and adopt multi-pronged measures, spanning antitrust enforcement, technological infrastructure support, fee reductions, talent training, and transaction cost reforms, to reverse the current imbalance with resolute action. Safeguarding small and medium-sized brokerages means safeguarding the future resilience of Hong Kong's financial sector; upholding fair competition is the only way to keep our capital market vibrant amid ongoing changes. We firmly believe that with the concerted efforts of the Government and the industry, Hong Kong's securities sector will overcome its difficulties and continue to shine brightly on the global financial map.

Strategically Positioning Islamic Finance - To Expand New Growth Markets for Hong Kong as an International Financial Centre

I. Introduction

Recent shifts in the global geopolitical landscape, US-China relations, and Hong Kong's international positioning have been notable. Historically, Hong Kong has leveraged its unique locational advantages to connect the Greater China region with European and American capital markets. However, amidst dramatic changes in the international environment in recent years, the structural risks arising from the Hong Kong financial industry's over-reliance on these two traditional major markets have been steadily increasing. In the long term, as an international financial centre, Hong Kong must proactively diversify its sources of funds to avoid the homogenisation of its market structure.

The global Muslim population has surpassed 2 billion, accounting for approximately one-quarter of the world's population. Oil-producing countries in the Middle East possess substantial financial resources, while the middle classes in Southeast Asian Muslim-majority nations (such as Malaysia and Indonesia) are continuously expanding, forming a vast investor group with distinct faith-based constraints. Islamic finance, grounded in Shariah law, prohibits interest-based speculation and requires assets to correspond to the real economy, thus constituting a comprehensive ecosystem distinct from conventional finance.

Hong Kong's local Muslim population is relatively limited, which has historically hindered the development of Islamic finance. Following recent visits to Malaysia and Indonesia, our Committee observes that Hong Kong should not adopt a "digging a well only when thirsty" mindset, nor should it assess the value of Islamic finance solely based on its local population size. Hong Kong's role is that of a global capital hub, and its objective is to attract high-net-worth individuals and Islamic funds from around the world to the Hong Kong market. Furthermore, the recent signing of a Memorandum of Understanding between HKEX and Bursa Malaysia represents a golden window of opportunity for Hong Kong to leverage a mature market and initiate its development of Islamic finance.

Hong Kong has successfully issued Sukuk (Islamic bonds) in the past, establishing a preliminary market foundation. Additionally, both Hong Kong and Malaysia share a common law heritage derived from the British legal system, providing complementary and referable legal frameworks. Currently, there is no globally unified standard for Islamic finance, and Islamic scholars in different regions have varying interpretations of transaction compliance. Hong Kong can adopt a progressive development strategy, starting with easier steps before tackling more complex ones, without the need to establish an independent standard overnight.

II. Core Development Strategy

Concrete policy recommendations are proposed below for the Chief Executive's and the HKSAR Government's reference in the formulation of the 2026 Policy Address.

Market Positioning: Further deepen Hong Kong's role as a super-connector, establishing it as an Islamic finance hub bridging Greater China, Southeast Asia, and the Middle East. This will attract funds from affluent Muslims globally, diversify Hong Kong's funding sources, and mitigate geopolitical risks. Simultaneously, it will create synergies with the "Going Out Task Force," enabling Hong Kong to further assist Mainland Chinese enterprises in expanding into Middle Eastern and Southeast Asian markets via Hong Kong.

Development Roadmap: Initially, reference Malaysia's mature system to reduce research and development and compliance costs, leveraging overseas Islamic scholars' certification systems in the short term. Once the market reaches a certain scale, review the potential establishment of a local Hong Kong Shariah advisory mechanism.

Regulatory Strategy: Adopt a principle of "flexible start-up and dynamic upgrading." In the initial phase, combine industry self-regulation with simplified registration to avoid excessive regulation that could stifle market emergence. Refine the dedicated licensing system after the business matures. For example, establish a memorandum with the Securities and Futures Commission (SFC) to support our Association as an institution for offering Islamic finance courses and examinations, enabling qualified individuals to provide Islamic finance-related services upon obtaining certification.

Industrial Integration: Led by the government, prioritise the integration of Sukuk with large-scale infrastructure projects, property development, and new industrial developments in the Northern Metropolis. Utilising Islamic finance's preference for tangible assets, this will open a new financing channel for the Northern Metropolis, subsequently allowing financial institutions to issue relevant Sukuk. Drawing on the Indonesian market experience, where Sukuk investors include retail investors and subscribing to Sukuk is as straightforward as subscribing to iBonds in Hong Kong, with most investors holding them to maturity.

III. Specific Policy Recommendations

A. Promote Banks to Establish Islamic Finance Windows and Develop Compliant Banking Services

Multinational banks such as HSBC and Standard Chartered have already established Islamic banking windows in Southeast Asia, offering savings and asset management services compliant with Shariah principles. It is recommended that the Hong Kong Monetary Authority (HKMA) take the lead in encouraging licensed banks in Hong Kong to establish Islamic finance service windows, introducing Islamic savings accounts and wealth management products that operate on profit-sharing models without involving interest-based transactions.

Short-term goal: Attract overseas Muslim investors to open accounts in Hong Kong and build a client base.
Long-term vision: Cultivate a habit among high-net-worth Muslims to conduct wealth management activities in Hong Kong.

B. HKEX to Establish an "Islamic-Compliant Listed Securities Certification System" to Create an Islamic Capital Market Label

Referring to the Shariah-compliant securities list mechanism of Bursa Malaysia, it is recommended that HKEX could launch a voluntary Islamic-compliant certification mechanism:

Allow listed companies whose business activities do not involve alcohol, gambling, high-leverage speculation, or other activities violating Shariah principles to apply for certification. Upon approval, they would be tagged with a specific label for easy identification by global Muslim investors.
After accumulating a certain number of compliant listed companies, support the industry in launching Hong Kong's own Islamic equity funds.
Deepen cooperation with Bursa Malaysia to explore the introduction of an Islamic capital connectivity mechanism (Islamic Connect), similar to the Shanghai-Hong Kong Stock Connect model, enabling two-way investment in compliant securities between the two markets. Upon maturity, this could be extended to other exchanges, thereby broadening the stakeholder base and liquidity of the Hong Kong stock market.

C. Adopt a Tiered Regulatory Approach to Cultivate Islamic Finance Professionals

The shortage of Islamic finance professionals is a major shortcoming for Hong Kong. It is recommended that the SFC adopt a flexible regulatory transition plan:

Short-term: The SFC signs a Memorandum of Understanding with the Hong Kong Financial Services Industry Association, allowing the industry to offer standardised Islamic finance courses and qualification examinations. Practitioners who pass these examinations would only need to register simply with the SFC to provide Islamic finance-related advisory services to clients.
Long-term: Continuously monitor the market's development scale. If the number of products and transaction volumes show sustained growth, review the necessity of adding a new category of regulated activity licence to establish a formal regulatory framework.

D. Expand Sukuk Issuance to Open New Financing Paths for the Northern Metropolis

Islamic finance favours projects backed by tangible assets and stable cash flows, which highly aligns with the infrastructure, industrial parks, and public housing projects in the Northern Metropolis. Drawing on the ideas from "Four Potential Possibilities of Islamic Finance and the Northern Metropolis (伊斯蘭金融與北都的四個潛在可能性)" an article submitted by our Vice-Chairman, Mr. Li Sai-Chung, to Orange News on 20^th April 2026:

The government takes the lead in researching the issuance of more Sukuk, using Northern Metropolis land, infrastructure, and industrial facilities as underlying assets.
Attract Islamic funds from the Middle East and Southeast Asia to participate in the development of the Northern Metropolis, reducing sole reliance on traditional syndicated loans and European/American bond markets.
Establish a standardised issuance process for infrastructure Sukuk, attracting Mainland Chinese provinces and enterprises to issue Sukuk in Hong Kong, thereby consolidating Hong Kong's position as an Asian Sukuk issuance centre.

Article link: 李世聰｜伊斯蘭金融與北都的四個潛在可能性

E. Strengthen Cross-Border Cooperation and Gradually Build Hong Kong's Shariah Governance Framework

Continue to deepen cooperation between Hong Kong and Malaysian regulatory bodies (Securities Commission), exchanges, and Islamic scholars, directly introducing mature compliance screening standards to save on institutional setup costs.
In the short term, there is no need to mandatorily establish an independent and binding Hong Kong Shariah adjudication system; initially, engage reputable Islamic scholars from the region to provide certification services.
In the long term, depending on market development, assess the possibility of establishing a local Hong Kong Shariah Advisory Council to formulate Islamic finance interpretive standards suitable for Hong Kong's common law environment and internationally acceptable.

IV. Conclusion

As a leading international financial centre, Hong Kong's core competitiveness lies in its openness, diversity, and institutional flexibility. Heavy reliance on the Greater China markets might constrain the growth potential of the financial industry in Hong Kong. The Muslim market, with a population of 2 billion, represents a blue ocean yet to be fully tapped by Hong Kong. Developing Islamic finance is not merely about adding new financial products; it is about reshaping the capital landscape of Hong Kong's market, strengthening its role as a cross-regional financial hub connecting China, Southeast Asia, and the Middle East.

We respectfully urge the Chief Executive, when formulating the 2026 Policy Address, to incorporate the strategic positioning of Islamic finance into Hong Kong's financial sector diversification strategy. We call for the prompt initiation of cross-departmental studies, with the Financial Services and the Treasury Bureau, the HKMA, the SFC, HKEX, and industry skate-holders who are committed in promoting the development of Islamic Finance forming a working group to formulate a 3-to-5-year action roadmap, steadily advancing the implementation of relevant policies.

Corporate Financing

Hong Kong Should Be Upgraded into a Full-Cycle Financing Platform for Mainland Enterprises Going Global

Hong Kong’s policy positioning in the corporate financing market should not remain limited to attracting companies for initial public offerings. Instead, it should be further upgraded into a full-cycle financing platform that supports Mainland enterprises in their “going global” strategy. The Association believes that, based on the overall trends observed in Hong Kong’s capital market over the past two years, this positioning is already supported by fairly solid data. In the first half of 2026, Hong Kong recorded 85 new IPOs, with total proceeds reaching approximately HK$209.9 billion, representing year‑on‑year growth of 92% and 102%, respectively—the best first‑half performance in the past five years. The Association notes that A+H listings and listings of Specialist Technology Companies have become the major incremental drivers, reflecting that Hong Kong has gradually evolved into a core financial market catering to the international financing needs of leading Mainland enterprises.

It is worth noting that A+H listings are emerging as the most important structural driver of growth in Hong Kong’s new listing market. In the first half of 2026, Hong Kong completed 24 A+H listings, a number that has already surpassed the full‑year total for 2025. During the same period, there were also 13 listings under Chapter 18C for Specialist Technology Companies. Together, these two categories accounted for over 70% of the total funds raised in the first half of the year. The Association believes that this phenomenon clearly shows that Mainland enterprises—especially pre‑revenue Specialist Technology Companies—are accelerating their efforts to connect with international investors through Hong Kong, establish offshore financing platforms, and enhance their global valuation and pricing capabilities.

The Association holds that Hong Kong’s policy objectives should shift from merely increasing the number of IPOs and the amount of funds raised, toward building a more comprehensive ecosystem for cross‑border financing and capital allocation. The Association believes that Hong Kong’s advantage lies not only in its excellent listing regime per se, but also in its ability to provide Mainland enterprises with a full‑chain suite of services, covering pre‑IPO restructuring, post‑listing refinancing, cross‑border fund deployment, and international capital allocation. The Association notes that the Hong Kong SAR Government has consistently emphasized that Hong Kong possesses advantages such as free capital flows, a sound legal system, a simple tax regime, an internationalized financial market, and well‑established professional support services, all of which can provide robust backing for Mainland enterprises going global. In the course of going global, Mainland enterprises face not just a single fundraising issue, but multidimensional challenges encompassing cross‑border fund deployment, exchange rate risk management, overseas legal compliance, tax structure design, and international talent support. The Association believes that Hong Kong’s institutional strengths precisely address these pain points, and can be further extended to provide systemic support in areas such as offshore financing, risk hedging, cross‑border mergers and acquisitions, and legal dispute resolution.

Therefore, the Association recommends that, in Hong Kong’s first five‑year plan, the role of Hong Kong as a “super‑connector” and “super‑value‑adder” should be more clearly defined, positioning Hong Kong explicitly as a capital, restructuring, and IPO preparation hub for Mainland enterprises before they go global, facilitating the optimization of offshore structures, pre‑IPO financing, and roadshows with international investors in Hong Kong. Second, the post‑listing refinancing function should be strengthened, with the promotion of diversified products such as rights issues, convertible bonds, USD‑denominated bonds, RMB‑denominated bonds, green bonds, and sukuk (Islamic bonds), so as to more effectively serve the funding needs of Mainland enterprises planning to go global—including for overseas plant construction in Southeast Asia, mergers and acquisitions, and supply chain restructuring. Third, building on the financing platforms and related coordination mechanisms already proposed by the government, the Association recommends integrating InvestHK, the Hong Kong Trade Development Council, HKEX, banks, and professional service providers to establish a genuine one‑stop financing and professional support platform. This would enable Mainland enterprises with going‑global plans to simultaneously access professional services in financing, legal, tax, ESG, and intellectual property protection in Hong Kong, this international financial hub.

The Association believes that, to comprehensively enhance Hong Kong’s medium‑ and long‑term competitiveness as an international financial centre, the most strategically valuable direction is to build Hong Kong into the premier financing and risk management hub for Mainland enterprises expanding globally. At the same time, this would enable deeper integration of Hong Kong’s high‑value‑added professional services and talent—in areas such as law, accounting, treasury management, and risk management—into the globalization process of Mainland enterprises, thereby closely aligning with the nation’s future development strategies.

Benchmarking Against International Best Practices: How Can Hong Kong Break the Bottleneck for Foreign Companies Seeking IPOs in Hong Kong?

Our association hopes that the HKSAR Government will formulate a long-term plan for increasing the number of foreign enterprises conducting initial public offerings (IPOs) in Hong Kong. As a premier international financial centre, Hong Kong has long attracted a large number of companies to list here, leveraging its well-established common law system, efficient capital flows, and high-quality intermediary services. However, looking back at the listing structure over the years, there remains considerable room for increasing the proportion of overseas non-mainland Chinese enterprises. Currently, non-China issuers account for less than 5% of the Hong Kong stock market, far below the levels of international exchanges such as New York and London. Amid the ongoing restructuring of global geopolitics and the economic landscape, proactively embracing enterprises from emerging markets such as the Middle East, Southeast Asia, and Europe is a key strategy for Hong Kong to deepen its roles as a "super-connector" and a "super value-adder."

In fact, while Hong Kong possesses an excellent financial foundation, it could also moderately benchmark against the flexible practices of other international financial centres in terms of policy innovation for attracting international enterprises, in order to further enhance its competitiveness:

- Regulatory Alignment Flexibility: Take the Singapore Exchange (SGX) as an example. In recent years, it has actively established joint-listing frameworks and single-prospectus mechanisms with major overseas exchanges, significantly reducing the cross-market compliance burden on companies. If Hong Kong, while safeguarding market quality, could offer more flexible approval channels for enterprises from emerging markets, it would significantly boost their willingness to list in Hong Kong. In fact, HKEX has recently moved in this direction, with listing reform consultations initiated in early 2026 proposing to significantly lower the market capitalisation threshold for companies with weighted voting rights structures and to optimise the secondary listing rules for overseas issuers. This precisely responds to market calls for streamlining cross-border listing procedures.

- Capital Channelling and Anchoring Effects: The Middle East capital markets have performed remarkably well in recent years, with the Saudi and Abu Dhabi stock exchanges leveraging their national sovereign wealth funds as "cornerstone investors" to provide strong valuation support for companies listing locally. Although Hong Kong has a substantial wealth management scale, there is still untapped potential to deepen collaboration in deploying policy-guided funds and attracting overseas sovereign funds to co-anchor foreign IPO listings. Our association has previously proposed the establishment of a dedicated overseas IPO guidance fund, spearheaded by a state-level investment fund or local capital; this concept is worth incorporating into the discussion for the next Policy Address.

- Diversification of Products and Cultural Support: Many leading enterprises in the Middle East and Southeast Asia have a rigid demand for Shariah-compliant financing. If Hong Kong could further refine its relevant financial product ecosystem and integrate it with the existing "dual-counter" model, it would be better positioned to attract high-quality companies in these sectors. Notably, this direction is no longer merely theoretical. At the end of July 2026, the Malaysian government announced the listing of its US$1.5 billion Islamic bonds on HKEX, demonstrating Hong Kong's tangible capacity to accommodate Islamic financial products. Going forward, Hong Kong should expand its product chain on this foundation.

To enable foreign enterprises to recognise Hong Kong's irreplaceable value, our association believes that proactive breakthroughs can be made in the following five areas:

First, optimise the cross-border listing regime. HKEX could consider simplifying the approval procedures for dual-primary listings by overseas companies and explore establishing closer cooperative frameworks with ASEAN and Middle Eastern exchanges, including clear approval timelines, to reduce compliance friction for companies listing in Hong Kong. While a comprehensive "mutual recognition of listings" mechanism remains a long-term vision and is difficult to achieve in the short term, a more pragmatic path is to begin by optimising secondary listing rules and specific product cross-listings, gradually building up institutional experience.

Second, establish a dedicated "Overseas Company Listing Desk." Our association recommends launching a new "Overseas Company Listing Desk" specifically designed to help international companies already listed overseas understand and navigate Hong Kong's listing rules, disclosure practices, and investor expectations. This service could draw on the model of the "Technology Enterprise Listing Desk," offering confidential application mechanisms and fast-track features that allow companies to disclose sensitive information only after successfully passing listing approvals, thereby preserving their competitive edge. Additionally, a dedicated approval channel could be set up for eligible Hong Kong Depositary Receipts (HDRs), providing a one-stop development package encompassing "headquarters plus listing," so as to comprehensively lower the institutional costs for international companies coming to Hong Kong.

Third, leverage the unique advantage of "leaning on the motherland." Hong Kong's strongest ace in attracting foreign enterprises lies in its ability to connect them with the vast pool of mainland Chinese capital. The HKSAR Government should actively strive to include eligible foreign companies listed in Hong Kong as eligible stocks under the Stock Connect programme. Encouragingly, this goal is already being realised incrementally. Since 2023, eligible foreign companies with a primary listing in Hong Kong have been included in the Stock Connect, and HKEX senior management has repeatedly highlighted this as a core selling point for attracting overseas companies. Going forward, the scope should be further expanded, and consideration should be given to establishing a "green channel" for strategically important international companies, allowing them to access mainland liquidity immediately upon listing, rather than waiting to be included in the Hang Seng Composite Index before entering southbound trading. This would enable mainland funds to participate earlier in the pricing of international companies.

Fourth, broaden the investment scope of the Mandatory Provident Fund (MPF) and increase institutional capital participation. Hong Kong's MPF assets have surpassed HK$1.6 trillion, but they are currently invested primarily in traditional fund products, which carry relatively high management fees and offer limited investment choices. If the MPF were permitted to invest more extensively in Hong Kong-listed ETFs, and once the ETF market achieves sufficient depth and breadth, further efforts could be made to open up Stock Connect access—for example, by including ETFs composed entirely of international stocks. This would introduce stable institutional capital into the market and enhance trading activity for international companies post-listing.

Fifth, strengthen the Islamic finance and RMB product chain. Hong Kong should promptly refine its Shariah-compliant listing and bond product frameworks and encourage foreign companies to issue RMB-denominated shares to meet the allocation demand of global institutional investors for offshore RMB assets. At the same time, tax and fiscal incentives for RMB-denominated financial products could be further expanded, and studies should be conducted to broaden the product scope and increase investment quotas under the Cross-boundary Wealth Management Connect scheme. This would create a mutually reinforcing ecosystem between the RMB product chain and the listing of international companies.

Our association believes that Hong Kong simply needs to take one more step forward on its already solid foundation. By proactively benchmarking against international experience, demonstrating greater policy flexibility, while pragmatically assessing the feasibility and implementation pace of various recommendations, Hong Kong will undoubtedly be able to polish its international credentials as a capital market once again.

Commodity Futures

Strengthening Hong Kong's Commodity and Foreign Exchange Risk Management Functions

Under the dual objectives of integrating into the nation's overall development and preserving its international advantages, the Hong Kong SAR Government must further intensify its policy efforts to consolidate Hong Kong's position as an international risk management centre and enhance the depth of professional services offered by its corporate treasury centre.

Since the beginning of this year, price volatility in energy, metals, and other commodities has intensified. Taking industrial metals as an example, sharp short-term price fluctuations have caught many enterprises lacking hedging mechanisms off guard. Against this backdrop, numerous mainland manufacturing and energy companies expanding their supply chains overseas have suffered avoidable substantial cost losses due to the absence of systematic foreign exchange and commodity risk hedging arrangements. When these enterprises decide to "go global," their decision-making chains tend to focus on market development and compliance registration, while severely underestimating the financial risks arising from exchange rate and commodity price fluctuations during raw material procurement and cross-border settlement. A single adverse price movement can erode an entire year's profits and even undermine corporate confidence in Hong Kong's treasury services over the long term.

The decision-making chain for enterprises going global generally entails three stages: first, identifying market opportunities; second, completing compliance and registration; and finally, entering into ongoing management of funds and risks. Much of the current discussion centres on the first two stages—market research and tax compliance registration—but pays insufficient attention to the third stage: how to manage the market risks that arise after funds are placed in Hong Kong.

As enterprises scale up and cross-border capital flows become more frequent, such risk exposure will only widen accordingly. The SAR Government's Action Plan for the Development of Corporate Treasury Centres in Hong Kong, announced this year, focuses on tax regimes, talent, promotion and other dimensions, with the goal of strengthening Hong Kong's capabilities as a hub for multinational corporate treasury centres. Speaking at an exchange event on the mainland earlier this year, Secretary for Financial Services and the Treasury Christopher Hui also explicitly noted that the demand for fund management by mainland enterprises after going global is growing rapidly, and that Hong Kong's treasury centre role is precisely the key to addressing this demand. However, existing policy priorities remain concentrated on "fund parking and deployment" aspects such as tax incentives, liquidity pools, and cross-border settlement, without yet addressing the most practical risk management execution issues faced by enterprises after expanding overseas.

Because commodity and foreign exchange hedging involves complex derivative instruments, margin management, and professional trading strategies, the treasury centres established in Hong Kong by mainland enterprises often operate with lean staffing and find it difficult to build in-house professional trading teams. This constitutes a clear operational gap in the overall policy narrative for corporate treasury centres. Notably, Hong Kong's licensed asset management and futures institutions already possess mature execution capabilities in this regard. In fact, certain institutions have designed commodity hedging cases for enterprises that have even been admitted into judicial records, demonstrating that local execution platforms are fully capable of undertaking the risk management needs of enterprises after going global. What is lacking is merely a formal policy positioning and a resource-matching mechanism.

To address this gap and respond to the nation's expectations for Hong Kong to establish itself as an "international risk management centre" and a "commodity trading ecosystem," our Association put forward two specific recommendations:

First, we recommend that, beyond the existing framework of the Action Plan for the Development of Corporate Treasury Centres in Hong Kong, the Government add a new "Risk Management Support" component, explicitly encouraging and promoting the participation of licensed financial institutions in providing commodity and foreign exchange risk hedging execution services for enterprises after going global. This measure does not entail additional fiscal expenditure; it merely requires formally establishing risk management as one of the core functions of treasury centres in existing policy narratives and promotional materials. This would not only help overseas-expanding enterprises achieve steady development but also inject new liquidity into Hong Kong's securities and futures markets.

Second, we recommend that Invest Hong Kong and various GBA outbound service platforms proactively include licensed and proven risk management execution institutions when recommending Hong Kong service offerings to mainland enterprises. Specifically, the relevant departments could take the lead in establishing a reference list or a simplified accreditation mechanism for risk management service providers, thereby forming a complete outbound service chain encompassing "market opportunity identification – compliance registration – risk hedging – fund settlement." This would enable mainland enterprises to more quickly and confidently find suitable professional partners when deciding to utilise Hong Kong's treasury services.

As the world's largest cross-border wealth management centre, with assets under management approaching US$3 trillion, Hong Kong's treasury centre role must not stop at "fund deployment" in order to maintain this leading position. Rather, it must formally establish "risk management" as an irreplaceable professional advantage in terms of both policy positioning and service matching. Only then can Hong Kong truly meet the long-term needs of national enterprises going global and consolidate its status as an international financial centre.

Our association looks forward to the SAR Government ushering in a new chapter in the long‑term development of Hong Kong’s commodity futures market

As the 2026 Policy Address is now open for public consultation, our association looks forward to a new chapter in Hong Kong's long-term development of commodity futures.

Regarding the expectations for Hong Kong's commodity futures development, the focus of discussion across various sectors has shifted from "whether to develop" to "how to implement concretely." Broadly speaking, these expectations can be summarised across four dimensions: consolidating infrastructure, deepening products, strengthening advantages, and simplifying the fee structure.

Expectation 1: Consolidate "physical delivery" infrastructure and resolve bottlenecks

The foundation of commodity futures lies in physical delivery capability, and Hong Kong's biggest shortfall is warehousing. Although LME-approved warehouses have increased from 4 to 15, with total capacity reaching 25,000 tonnes, other Asian hubs generally operate at the 200,000 to 250,000-tonne level, a significant gap.

Our association has two specific expectations:

- We hope the Policy Address will respond to calls by designating land in the Northern Metropolis, Hung Shui Kiu, and other areas for high-load-bearing warehousing that meets LME standards (some of which require floor loadings of 4 to 10 tonnes per square metre), so as to address the current scarcity of warehousing space that meets delivery specifications.

- Streamline logistics and customs clearance: For bulk cargo such as copper and aluminium, we hope the government will study converting some container berths into dedicated berths for bulk commodities; concurrently, establish cross-border data-sharing mechanisms and introduce facilitation measures such as "centralised declaration with batch-by-batch transit."

Expectation 2: Expand CNY-denominated products and strengthen pricing power

CNY-denominated gold products are just the beginning. Hong Kong is currently studying the establishment of a centralised gold clearing system and exploring the extension of the identifier code regime to the derivatives market to strengthen regulation. The market looks forward to early implementation to boost institutional participation confidence.

CNY pricing is Hong Kong's trump card. As the world's largest offshore CNY liquidity pool, Hong Kong is well-positioned to promote more CNY-denominated products. Building on existing gold products, the market expects accelerated launch of offshore-CNY-denominated futures contracts for copper, aluminium, nickel, and other metals via platforms such as the LME, aligning with the national "15th Five-Year Plan" support and deepening pricing-power collaboration with mainland markets such as the Guangzhou Futures Exchange.

Expectation 3: Focus on "differentiated" niches with precise positioning

- Develop sustainable metals: Leveraging the substantial demand from the mainland's new energy and AI industries for key raw materials such as silver, copper, and aluminium, we expect Hong Kong to prioritise "sustainable metals" trading and consider offering preferential tax rates of as low as 5% for ESG-compliant metal trading to benchmark against Singapore.

- Drawing on the model of the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, industry initiatives have proposed exploring a "Commodity Connect" in the future as a conduit linking the mainland and international markets.

- Expand emerging market networks: Utilising Hong Kong's strengths in testing and certification, explore the establishment of "Halal commodity" standards and financing instruments to connect with capital from emerging markets such as the Middle East and ASEAN.

Expectation 4: Simplify the fee structure for commodity and equity index futures contracts

The fee structure for Hong Kong's commodity and equity index futures markets is complex and difficult to understand, even practitioners cannot instantly map out the charges. For example, equity options are subject to three tiers of fees, and the contract multiplier varies for each stock option, resulting in excessively high transaction costs per contract that deter investors from participating.

Our association hopes that the government, in collaboration with the joint futures exchanges, will review the fee structures across all products to make them simpler and more transparent, enabling both institutional and retail investors to calculate trading profits and losses more easily.

Compliance and Anti-Money Laundering Aspects

Hong Kong's New Financial Coordinates for Coordinating Development and Security

The Hong Kong Special Administrative Region Government is currently conducting public consultation on the 2026 Policy Address, with various sectors of society closely watching how Hong Kong will proactively align with the national "15th Five-Year Plan" strategic blueprint. Under the Government's policy emphasis on "Finance+" and "AI+", the Association believes that the policy direction of the Securities and Futures Commission (SFC), as the core market regulator, in the areas of anti-money laundering and compliance has become a focal point for the market in weighing development benefits against compliance costs.

The SFC's regulatory direction remains highly consistent with the SAR Government's macro policy of "enhancing governance effectiveness and balancing development with security." While various compliance upgrade measures help improve market integrity and prevent systemic risks, they also impose significant cost and adaptation challenges on the industry at the operational level. The Association will objectively assess the dual effects of this regulatory upgrade on Hong Kong's financial ecosystem from the following five core dimensions.

I. Virtual Asset Licensing and Custody Regime: Balancing Institutional Soundness with Market Entry Barriers

In line with the national and SAR Government's policy focus on bringing emerging assets under routine regulatory oversight, the SFC and the Financial Services and the Treasury Bureau (FSTB) have formally advanced the legislative framework for virtual asset custody services, fully incorporating the "trading, custody, and over-the-counter (OTC) trading" of virtual assets into the scope of the “Anti-Money Laundering and Counter-Terrorist Financing Ordinance”.

On the positive side, the establishment of clear financial and operational compliance indicators by the regulator helps identify operators with sufficient financial strength and technical capabilities. As of mid-2026, the number of licensed and conditionally licensed virtual asset trading platforms in Hong Kong has steadily grown, with the market capitalization of related spot ETFs also seeing significant increases. Formalizing the custody regime into law and imposing safety net requirements can effectively eliminate compliance concerns among international institutional investors, attracting more "patient capital" seeking medium- to long-term returns to Hong Kong and fostering a healthier long-term investment environment.

However, these high statutory standards have objectively raised industry access thresholds and compliance upgrade costs:

Financial and Capital Indicators: Licensed corporations of the SFC are required to maintain a minimum paid-up share capital of HK$10 million (and maintain minimum required liquid capital of no less than HK$3 million), and must at all times maintain an excess liquid capital equivalent to 12 months of actual operating expenses.

Technical Segregation and Compensation Arrangements: Mandatory requirement that at least 98% of client virtual assets be stored in segregated cold wallets; compensation arrangements must fully cover 50% of the cold wallet assets and 100% of hot wallet and online storage assets.

External Attestation and Procedural Requirements: SFC-licensed corporations are mandatorily required to engage external assessors to conduct direct attestation engagements and submit reports, with such reviews signed and endorsed by practicing certified public accountants, and a tripartite agreement signed by the SFC, the licensed corporation, and the external assessor.

While these high standards protect investors, they have also set the compliance bar excessively high. As a result, only large financial institutions with ample resources can afford to play, squeezing out the survival space of small, medium-sized, and start-up companies, and to some extent dampening the market's innovative vitality.

II. Promoting "AI+ RegTech" and Cyber Defense: The Trade-off Between Technological Empowerment and Compliance Costs

In response to fintech innovation trends, the SFC issued a clear circular in mid-2026 mandating that licensed corporations, virtual asset service providers, and relevant entities must comprehensively review and strengthen cybersecurity measures to address cross-border money laundering and cyberattack risks driven by artificial intelligence (AI).

On the positive side, given the global upward trend in suspicious cyber incidents, traditional "static rule-matching" approaches are no longer sufficient to combat cross-border, highly intelligent financial crimes. Promoting AI-driven regulatory technology (RegTech), with direct accountability assigned to Manager-In-Charge (MIC) persons, helps licensed corporations more accurately detect fund loopholes and sanctions-evasion behaviors amidst massive cross-border transactions, safeguarding Hong Kong from international sanctions-related repercussions.

However, from the industry's operational reality perspective, mandating or highly guiding the introduction of AI into sanctions screening and real-time monitoring systems directly entails substantial compliance upgrade costs. The research, development, deployment, and ongoing maintenance costs are extremely high. For the large number of local small and medium-sized licensed corporations in Hong Kong facing shrinking turnover and, according to official data, significantly marginalized market share (such as traditional C-group brokers and small asset management firms), the " universally applicable" regulatory requirements, coupled with the absence of direct financial subsidies, have undoubtedly sharply driven up fixed operating overheads, thereby intensifying the survival pressures across the industry.

III. System Upgrades and Data Standardization: The Reality of Efficiency Gains and Transition Adaptation

In line with the SAR Government's policy direction of "enhancing governance efficacy and digital government," the SFC, in close collaboration with the Joint Financial Intelligence Unit, has implemented the full digitalization of reporting channels for suspicious transaction reports (STRs). Pursuant to official guidelines, the industry must fully transition to the next-generation Suspicious Transaction Reporting Electronic And Management System (STREAMS).

On the positive side, this infrastructure upgrade has enabled the full digitalization of anti-money laundering reporting across Hong Kong's securities and futures industry. This not only significantly shortens intelligence circulation and law enforcement response times but also enhances the precision of big data analytics by regulators, meeting market expectations for smart finance and efficient governance.

In practice, however, the full transition to designated electronic channels has caused short-term adaptation pains for some small and medium-sized intermediaries with limited manpower and slower IT system integration. Regulators have explicitly stipulated that intermediaries must submit reports through the designated secure electronic platform, configured with valid electronic certificates (e-Cert) or using the specified XML data format, with traditional methods such as mail, fax, or encrypted email being essentially phased out from daily operations. During the transition period of system switching and technical debugging, frontline compliance personnel face heightened operational adaptation difficulties and potential risks of late reporting.

IV. Aligning with the Government's "Results-Oriented" Approach: Balancing Performance Management with Institutional Flexibility

The Chief Executive continues to advocate a result-oriented governance culture and promotes enhanced implementation efficiency in public administration through the introduction of key performance indicators (KPIs). Under this steer, the SFC has in recent years demonstrated a new, more time-effective governance style in fulfilling its market supervision and anti-money laundering review functions, including streamlining the licensing approval process, enhancing the precision of on-site inspections, and imposing deterrent sanctions in accordance with the law.

On the positive side, this efficiency- and outcome-driven regulatory model has significantly improved the overall compliance expectations and transparency of Hong Kong's financial market. Clear and quantifiable regulatory indicators effectively guide financial institutions to optimize their internal compliance processes, directly linking anti-money laundering outcomes with corporate governance, thereby reinforcing Hong Kong's international image as a highly secure international financial center in global anti-money laundering compliance ratings (such as FATF assessments).

However, when regulatory bodies translate macro performance indicators into specific vetting requirements, the market is increasingly concerned with how to strike a balance between maintaining market integrity and preserving commercial vitality. Under a rigorous metrics-driven enforcement approach, when faced with highly complex or non-traditional commercial structures, some licensed corporations may tend to adopt overly conservative, form-over-substance risk-management measures in pursuit of zero-defect compliance outcomes. Such rigid compliance expectations have objectively prolonged the approval cycles for certain innovative financial products or cross-border emerging businesses, posing systemic friction and adaptation challenges to the flexibility and agility required by the market.

V. Aligning with the National "Five-Year Plan": The Tug-of-War Between Cross-Border Security Barriers and Fund Flows

The SAR Government has emphasized that Hong Kong should more proactively align with the country’s "15th Five-Year Plan" strategic blueprint, implementing the core strategies of " coordinating development and security" and "preventing cross-border financial systemic risks" in local policies. The SFC's upgrading of compliance regulation is manifested in the implementation of more penetrating anti-money laundering (AML) scrutiny over cross-border fund transfers and under the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) Mutual Access schemes..

On the positive side, by optimizing cross-border compliance defenses, the SFC has built a robust "firewall" for Hong Kong to guard against international financial risks. In the process of deepening the two-way opening of the mainland and Hong Kong financial markets (such as the Greater Bay Area Cross-Boundary Wealth Management Connect), rigorous scrutiny ensure that Hong Kong can effectively prevent cross-border money laundering and systemic financial risks while leveraging its role as a 'super-connector', thereby ensuring the healthy operation of the Mutual Access schemes. .

However, while cross-border scrutiny has macro-consolidated the security baseline, in day-to-day industry operations, the interfacing of the two regulatory regimes with their distinct differences has also brought about technical friction for 'GBA fund flows and capital integration'. This primarily stems from the differing statutory standards between the two places regarding cross-border financial data transfer and remittance workflow vetting, subjecting cross-border funds to dual restrictions:

Dual Compliance Requirements for Cross-Border regulations: When mainland investors make southbound investments through mechanisms such as the 'Cross-Boundary Wealth Management Connect', the same sum of funds must simultaneously clear dual regulatory hurdles from both places: on the Mainland end, Mainland financial institutions must strictly vet the foreign exchange purchase purpose, remittance quotas, and conduct anti-money laundering (AML) checks; on the Hong Kong end, Hong Kong licensed corporations are similarly required, in accordance with SFC guidelines, to verify the source of funds and client identity on a transaction-by-transaction basis. This reality of 'separate enforcement by both places with overlapping procedures' means that cross-border funds must simultaneously satisfy two independent and stringent sets of review standards..

Invisible Barriers to cross-boundary flow of financial data: Despite the implementation of policies by both governments, such as the Standard Contract for the Cross-boundary Flow of Personal Information within the Guangdong-Hong Kong-Macao Greater Bay Area (GBA Standard Contract), to facilitate cross-boundary data flows, financial institutions in both places still find it difficult to achieve real-time and direct data sharing in daily operations during practical compliance checks. They are constrained by the strict statutory procedures for outbound transfer of sensitive data under the Mainland's Personal Information Protection Law (PIPL) (such as the requirements to obtain separate consent from data subjects and complete specific compliance filings), and are unable to conduct cross-market look-through inspections of clients' underlying account opening and transaction data on the other side.

Under the current mechanism, the realities of dual reviews and non-interoperable data present dual challenges: internally, they prolong the account opening and settlement processes of financial institutions, significantly increasing the administrative burden of cross-border compliance; externally, they weaken the convenience of the Greater Bay Area mutual access mechanisms to a certain extent, affecting the smoothness of cross-border asset allocation experiences.

Conclusion and Recommendations: Seeking the Regulatory Wisdom of Dynamic Equilibrium

Overall, the Association considers that against the macro background of aligning with the national "15th Five-Year Plan" and the SAR Government's enhancement of governance efficacy, the escalation of financial compliance requirements is a double-edged sword. The "full-chain regulation", "AI-enabled RegTech)" and "efficient AML enforcement" implemented by the SFC have indeed built a solid defense line against financial crimes at the macro level, safeguarding the stability and security of the local financial system.

However, while pursuing high-standard international compliance and efficient governance, regulatory authorities must also take into account the diversity and vitality of the financial ecosystem. The Association therefore recommends that the Government and the SFC consider the following two aspects for optimization in the future:

1. Establishment of a dedicated subsidy for compliance transformation: The Association recommends that the Government and the SFC drawing on existing FinTech funding schemes, establish a dedicated "RegTech and Cybersecurity Transformation Fund" to provide financial subsidies and technical support for small and medium-sized financial institutions to introduce RegTech and cybersecurity systems. This would alleviate the fixed cost and maintenance pressures on SMEs and preventing over-concentration of compliance resources from losing market innovation diversity.

2. Implementation of the Proportionality Approach: The Association recommends that when assessing regulatory effectiveness and establishing key performance indicators (KPIs), the Government and the SFC, when evaluating regulatory effectiveness and establishing key performance indicators (KPIs), holistically balance multi-dimensional policy objectives such as "risk prevention" and "market vitality". Upholding risk-based supervision, proportionate compliance requirements should be implemented according to the business scale and actual risk exposure of financial institutions. On the premise of guarding the bottom line of financial security, reasonable institutional flexibility and room for trial and error should be granted to emerging and cross-boundary businesses, thereby striking a dynamic balance among regulatory intensity, administrative efficiency, and market survival space.

Introducing the "De Minimis" Principle to Enhance the Precision of AML Supervision

Since the 9/11 attacks in the United States in 2001, the international community has continuously raised its standards for combating money laundering and terrorist financing. As an international financial hub, Hong Kong has over the years progressively refined its legal and regulatory framework, requiring banks, brokerages, and other financial institutions to scrutinize customer identities, sources of funds, and suspicious transactions. This system has been instrumental in safeguarding financial security, combating cross-border crime, and cementing Hong Kong’s international reputation.

Nevertheless, at the frontline execution level, AML supervision still faces the issue of imprecise resource allocation. Some occasional transactions involving small amounts, very low frequency, and reasonable backgrounds often trigger review procedures comparable to those for high-risk cases, forcing institutions to expend significant manpower verifying documentation. According to statistics from the Joint Financial Intelligence Unit (JFIU), Suspicious Transaction Reports (STRs) in Hong Kong surged from 51,588 in 2019 to 190,636 in 2025—an increase of more than threefold over six years, reflecting the mounting compliance pressure on the industry. If low-risk transactions are uniformly subjected to the same standards as high-risk ones, finite compliance resources become diluted by ordinary cases, thereby weakening the ability to identify truly suspicious, large-scale, or obscure-source funds.

Take, for example, third-party deposits into securities accounts—a scenario that is quite common, ranging from small family matters to large cross-border investment structures. At the milder end is a wife depositing three to five thousand dollars on behalf of her husband while he is on a business trip, to settle a stock trade, or parents or a spouse making small transfers for routine needs—the amounts are modest and the origins clear. What truly puts institutions on high alert is another category: a client opening a securities account in the name of a BVI (British Virgin Islands) company, with an individual subsequently funding that corporate account. Offshore incorporation, layered shareholding, and a payer who does not match the account holder—on the surface, these are precisely the characteristics that AML regimes are most wary of: funds that are difficult to trace and beneficial owners that can be easily obscured, where a single oversight could facilitate money laundering or illicit capital flight. Faced with such accounts, institutions dare not slacken their efforts and invariably initiate the strictest reviews.

However, the devil often lies in the details. If the BVI company has only a single shareholder, and the individual injecting the funds is precisely the sole ultimate beneficial owner that the institution has already identified and verified during account opening in accordance with the law, then the so-called "third party" effectively does not exist—the payer and the person behind the account are one and the same, and the source of funds has already been authenticated beforehand. The reason for the individual to inject funds in the first place is often simply that it takes considerable time for an offshore company to open a bank account in Hong Kong, leaving no alternative before the corporate bank account is in place. Such cases may appear to wear a high-risk cloak, yet the underlying doubts have been substantially resolved at the onboarding stage through due diligence. Under current practices, however, institutions are still required to demand repeated explanations, supplementary documentation, and follow-up records from clients solely on the formalistic discrepancy that "the payer's name does not match the account holder," treating them uniformly at the highest risk level. The result is that arrangements with relatively low actual risk end up consuming the same frontline compliance resources as truly high-risk cases.

It is important to note that the AML obligations of the securities industry stem from the licensing regime under the Securities and Futures Ordinance and the Guideline on Anti-Money Laundering and Counter-Terrorist Financing issued by the Securities and Futures Commission (SFC). This Guideline already adopts a risk-based approach, emphasizing that institutions should allocate scrutiny in proportion to actual risk. In other words, for the various third-party deposits mentioned above, the issue is not whether they should be monitored, but whether the intensity of review can more accurately reflect their amounts, frequency, background, and beneficial ownership relationships. A crucial distinction must also be drawn here: what can be simplified is the degree of Customer Due Diligence (CDD), not the reporting of suspicious transactions themselves—wherever reasonable suspicion exists, regardless of the amount, institutions must still file reports in accordance with the law, which is fully consistent with FATF requirements.

"De Minimis" derives from the Latin legal maxim de minimis non curat lex, meaning that the law should not concern itself with trivial matters. Introducing this principle into financial regulation is not an argument for deregulation, but rather an emphasis on prioritization and risk-tiering.

This concept already has a successful precedent in Hong Kong. Chapter 14A of the Listing Rules provides a de minimis exemption for connected transactions: minor connected transactions may be exempted from reporting, announcement, or independent shareholders' approval requirements. Even more instructive is that the relevant monetary threshold is not set in stone—years ago, the cap for transactions eligible for full exemption was approximately HK$1 million, and was later raised to HK$3 million, reflecting the regulators' willingness to adjust the exemption level periodically in response to inflation and market conditions. This precisely demonstrates that de minimis is both practicable in practice and capable of keeping pace with changing times.

Looking globally, threshold-based approaches are equally common: FATF Recommendation 10 sets a review threshold equivalent to approximately USD 15,000 for "occasional transactions"; the United States likewise has a USD 10,000 reporting line for large cash transactions. This shows that establishing reasonable thresholds for low-risk transactions is already an internationally accepted regulatory tool.

Accordingly, our Association recommends that the government and regulatory authorities study the introduction or expansion of the "De Minimis" principle in AML supervision. This approach is entirely consistent with the existing risk-based direction, further operationalizing established principles rather than reinventing the wheel. Specifically, for third-party deposits or transfers below a certain threshold (e.g., equivalent to approximately USD 10,000) with reasonable backgrounds, simplified CDD and record-keeping arrangements could be established: clients would only need to provide a simple and reasonable explanation (such as a family member depositing on their behalf, or financial arrangements between spouses), and as long as the transaction does not involve high-risk jurisdictions, sanctions lists, or other suspicious factors, institutions could handle the matter in a streamlined manner without uniformly demanding extensive documentation. Furthermore, the low-risk characteristic of some third-party deposits stems not from the monetary amount but from the payer's identity: if the payer has been verified by the institution at account opening as the sole ultimate beneficial owner of the corporate account holder (meaning the capital provider and the beneficial owner behind the account are one and the same), then such arrangements do not involve a genuine third party, and simplified due diligence may be applied even if the amount exceeds the aforementioned threshold—provided, of course, that the transaction does not involve high-risk jurisdictions, sanctions lists, or other suspicious factors, and that the institution already has sufficient verified records of the relevant beneficial ownership relationship.

Of course, a threshold system must be complemented by risk monitoring to prevent exploitation by illicit actors. If the same account shows frequent deposits approaching the threshold over a short period, or exhibits deliberate structuring, obscure sources, or inconsistencies with the client's profile, institutions should still initiate further reviews and file reports where necessary. To this end, an "aggregation mechanism" could be introduced, assessing risk based on cumulative amounts over a defined period rather than individual transaction amounts, with the threshold subject to regular review in light of economic conditions. Conversely, if a transaction occurs only once or twice a year, involves a modest amount, and has a reasonable life-event background, it should be treated as low-risk and allowed to proceed without hindrance.

The original intent of the AML regime is to intercept illicit funds that genuinely threaten the financial system, not to erect excessive barriers for citizens' reasonable daily needs or for duly verified, legitimate arrangements with materially low risk. Introducing the De Minimis principle can enhance regulatory precision and cost-effectiveness—without weakening the system or deviating from the FATF framework—by concentrating finite compliance resources on truly high-risk activities. This approach not only alleviates unnecessary burdens on the public and the industry, but also aligns with Hong Kong's efforts to consolidate its status as an international financial center and improve the business climate and quality of life, achieving multiple objectives at once.

Asset Management

Comprehensive recommendations for asset management

As an international financial centre, Hong Kong's asset and wealth management industry has always been a key pillar of its financial services sector and an important bridge connecting the mainland Chinese and international capital markets. According to the latest data from the government and regulatory authorities, by the end of 2024, the scale of Hong Kong's asset and wealth management business had increased to approximately HK$35.1 trillion, representing year-on-year growth of about 13%. This included net fund inflows of approximately HK$705 billion, which surged by over 80% compared to the previous year, reflecting Hong Kong's continued attractiveness as an asset management hub amid volatile market conditions.

Among these, the assets under management (AUM) of private banking and private wealth management businesses reached approximately HK$10.4 trillion, up about 15% year-on-year. Meanwhile, the net asset value of SFC-authorized Hong Kong-domiciled funds grew by approximately 22% in 2024 to about HK$1.64 trillion, and further increased by about 21% in the first five months of 2025 to approximately HK$1.99 trillion. This indicates that the potential of Hong Kong as a fund domicile and distribution platform continues to be unleashed.

In terms of client sources, about 40% of assets come from Hong Kong investors, while the remaining over 60% are contributed by investors from Mainland China, the Asia-Pacific region, Europe, and the Americas. This highlights Hong Kong's solid foundation and diversified client structure in cross-border capital allocation, professional investment management, and international financial services.

As the country prepares to enter the new phase of the 15th Five-Year Plan, Hong Kong is actively studying and formulating its medium-term development blueprint (the "Hong Kong Five-Year Plan"), emphasizing proactive alignment with national development strategies, including deepening financial openness, promoting the internationalization of the Renminbi (RMB), serving the real economy, and supporting enterprises in "going global." As a core platform for capital allocation, the asset and wealth management industry should play an even more critical role in this process. However, against the backdrop of global capital flow realignment, rising geopolitical risks, and active market capture by other financial centres such as Singapore and the Middle East, for Hong Kong to sustain and consolidate its position as an international asset and wealth management centre, it must introduce more forward-looking and competitive policy measures in areas such as fund regimes, regulatory costs, tax arrangements, product innovation, and international development, while more clearly integrating into the overall national development landscape.

I. Extend and Increase Subsidies for Open-ended Fund Companies (OFCs) to Enhance the Competitiveness of Hong Kong's Fund Domicile Platform

In recent years, Hong Kong's introduction of the OFC regime and fund redomiciliation arrangements has indeed provided a more competitive legal framework for establishing and managing funds in Hong Kong and has laid a crucial foundation for the local fund ecosystem. According to the latest SFC survey, the number of registered OFCs increased by over 90% year-on-year in 2024, indicating that market interest in using Hong Kong as a fund domicile is significantly rising under the support of the institutional framework and subsidy schemes. The Association agrees with the government's direction to provide subsidies covering up to 70% of eligible expenses through the SFC-administered OFC and Real Estate Investment Trust (REIT) subsidy scheme and to extend the scheme to 2027. This is a correct and forward-looking approach.

However, front-line fund managers have reported to the Association that the latest arrangements have lowered the subsidy caps for private OFCs and public OFCs — the cap for private OFCs is HK$150,000, and for public OFCs, HK$300,000. Moreover, each investment manager is now only eligible for a subsidy for one OFC application. This design, in practice, offers limited help to small and medium-sized fund managers and start-up asset management firms. Establishing an OFC involves not just the registration fee but also various fixed costs, including legal documentation, fund structure design, tax advice, auditing, custody, fund administration, and ongoing compliance. This is a substantial barrier, particularly for institutions aiming to establish multiple flagship products in Hong Kong but whose AUM has not yet reached an economic scale.

The Association observes that some platforms interested in setting up products in Hong Kong still prefer to use offshore structures like the Cayman Islands. This is not due to a lack of confidence in Hong Kong's regime but because, considering overall start-up costs versus the scale of available policy support, there is still insufficient incentive for a structural shift. If this situation persists, it will be difficult for Hong Kong's local fund manufacturing and professional services ecosystem to achieve a more significant clustering effect in the short to medium term.

In the new phase of the national 15th Five-Year Plan, which emphasizes enhancing the financial sector's capacity to serve the real economy and optimizing capital market systems, the Association believes Hong Kong must simultaneously strengthen its local fund manufacturing capabilities, making Hong Kong-domiciled and -managed funds a key vehicle for channeling both mainland and international capital. In view of this, the Association makes the following specific recommendations:

The government shoud, together with the SFC, review the current OFC subsidy levels and consider moderately raising the subsidy caps for both private and public OFCs, especially for small and medium-sized and newly established managers setting up their core products in Hong Kong for the first time.

Reax the limit on the number of OFC subsidy applications per manager, allowing institutions genuinely committed to using Hong Kong as their long-term fund domicile and operational base to receive more consistent policy support throughout their product development process.

Extend the subsidy coverage from the "estabishment phase" to include expenses related to re-domiciliation, restructuring, and ongoing compliance, such as legal and tax costs during fund restructuring, annual audits, and compliance system upgrades. This would encourage more existing offshore funds to redomicile to Hong Kong and complete their long-term operational setup here.

The Association believes that if the government makes these enhancements within the existing framework, it will not only effectively lower the barriers for small and medium-sized funds and start-up asset managers to establish products in Hong Kong but also drive the development of the entire high-value-added professional services chain, including legal, accounting, fund administration, custody, and technology support. In the medium to long term, this would align with the national policy direction of two-way opening of the capital market and internationalization of RMB assets, thus consolidating Hong Kong's core position as a regional and international fund domicile and management platform.

II. Extend the SFC Licensing Fee Waiver to Alleviate Operational Pressures on Small and Medium-Sized Licensed Institutions

The SFC previously announced a waiver of annual licensing fees for all intermediaries and licensed individuals from 1 April 2024 to 31 March 2025 to support the industry amid market pressures. For asset management companies, especially small and medium-sized licensed corporations, rising compliance costs persist under current market conditions, including expenses for responsible officer deployment, internal control systems, IT investment, cybersecurity, professional indemnity insurance, and ongoing training. Coupled with a fundraising and trading environment that has not yet fully recovered, profitability remains under pressure. If the annual licensing fee is fully reinstated without fundamentally alleviating the above pressures, it would further increase the operational burden on small and medium-sized institutions.

It is worth noting that the SFC recorded a surplus of approximately HK$1.782 billion for the 2025–26 fiscal year, a significant increase from the previous fiscal year's surplus of about HK$241 million. This reflects a notable improvement in the regulator's financial performance from transaction levies, licensing-related income, and investment returns. This growth is largely attributable to increased turnover in Hong Kong's securities markets, leading to higher levy income, alongside better-performing investment portfolios. This suggests the SFC currently possesses some fiscal capacity, creating practical policy room to extend or optimize licensing fee relief measures without compromising its regulatory functions and market quality.

Furthermore, according to the SFC's annual reports and past submissions to the Legislative Council, the regulator has fully waived annual licensing fees for multiple fiscal years, including 2009–10, 2012–19, and 2020–25, and has also provided a 50% fee reduction during certain periods. This demonstrates the regulator's willingness to use fee relief as a means to support market stability and licensed institutions during challenging times. Given the significantly improved surplus in 2025–26, appropriately "giving back" some of the fiscal gains to the industry, particularly to smaller corporations facing greater operational pressures, aligns with prudent fiscal principles and helps enhance the resilience and sustainable development capacity of the overall financial ecosystem.

Therefore, the Association recommends that the government support the SFC in extending the licensing fee waiver and research a tiered fee system based on business scale, revenue levels, or licence types, providing more targeted relief measures for small and medium-sized corporations, newly licensed entities, and firms whose core business is asset management. Concurrently, administrative fees related to licence applications, changes, transfers, and renewals could be reviewed to improve overall system convenience. While this is primarily a cost-side optimization, given the SFC's improving financial position, extending the fee waiver would not only stabilize industry confidence and support the continued operation of small and medium-sized licensed institutions but also help attract overseas and mainland asset management teams to establish operations in Hong Kong. This echoes the national direction under the 15th Five-Year Plan to promote high-quality development of the professional services sector and financial talent, providing stronger institutional support for Hong Kong's long-term competitiveness in asset management.

III. Improve the Tax Regime to Facilitate the More Complete Localization of the Asset Management Value Chain in Hong Kong

In recent years, the government has enhanced Hong Kong's appeal to funds and family capital through measures such as the profits tax exemption for funds, tax concessions for carried interest, and tax concessions for single-family offices. Complementing these measures, the scale of family office and private wealth management has accelerated in recent years, with the AUM of private banking and private wealth management reaching approximately HK$10.4 trillion in 2024. This indicates that high-net-worth clientele are actively utilizing Hong Kong for asset allocation and family succession arrangements.

The Legislative Council Panel on Financial Affairs has also discussed further optimizing the preferential tax regimes for funds, family-owned investment holding vehicles, and carried interest, reflecting the authorities' active efforts to refine the relevant systems. However, for international asset managers, beyond the tax benefits themselves, greater importance is placed on the clarity of the regime, the sufficient breadth of eligible investments, and whether it supports cross-border asset allocation, alternative investments, and family succession arrangements. The Association recommends that the government further broaden the definition of qualifying transactions, optimize the tax arrangements for carried interest, and review the physical presence requirements and related approval guidelines. This would benefit more institutions that genuinely use Hong Kong as their centre for investment decision-making, risk control, research and analysis, and client management. To enhance its competitiveness, Hong Kong must move beyond the role of a mere "capital parking place" and further develop into a centre for high-value-added investment decision-making and asset allocation. A clearer and more inclusive tax environment can attract more fund managers, family offices, and professional teams to keep their core functions in Hong Kong, driving the upgrade of the entire asset management industry chain and better meeting the national demands under the 15th Five-Year Plan for wealth management, pension finance, and multi-level capital market development.

IV. Deepen Connectivity and Product Innovation to Enhance Cross-Border Asset Management Functions

Hong Kong's greatest institutional advantage lies in its unique combination of international market rules and national development opportunities. The government has consistently emphasized leveraging Hong Kong's role as a two-way platform connecting the Mainland and international markets, and will continue to deepen financial cooperation with the Mainland and progressively expand the scope of Market Connect schemes. Currently, Hong Kong has achieved foundational results in areas like Mutual Recognition of Funds (MRF), Cross-boundary Wealth Management Connect, and the inclusion of ETFs in the Connect Programmes. The MRF arrangement between the Mainland and Hong Kong was further optimized starting in 2025.

By the end of 2024, approximately 60% of assets under management in Hong Kong's asset and wealth management business were invested in overseas markets, positioning Hong Kong as a key intermediary platform for international capital flowing into global markets. Looking ahead, the Association recommends that the government actively study with relevant Mainland authorities the inclusion of more asset classes into the Connect Programmes, including REITs, more ETFs, private funds, and green and sustainable financial products. This would further enhance the product depth and cross-border distribution capabilities of Hong Kong's asset management platform. Concurrently, adhering to principles of investor protection and risk control, pilot projects for tokenized funds, digital securities, and digitalization of fund operations should be promoted. This would allow Hong Kong to take the lead in integrating traditional asset management with financial technology, thereby improving market efficiency, attracting a new generation of investors and innovative financial institutions to use Hong Kong as a testing and implementation platform, and aligning with the nation's overall 15th Five-Year Plan deployment for the integrated development of digital finance, green finance, and technological innovation.

V. Strengthen Support for Financial Asset Management "Going Global" and Position Hong Kong as the Headquarters for Mainland Capital's Global Allocation

Beyond consolidating Hong Kong's role as a platform for international capital entering the Mainland, the Association recommends that the government more proactively position Hong Kong as the preferred headquarters for the "going global" activities of Mainland capital, family assets, and asset management institutions. According to SFC surveys, assets managed by Mainland-related asset and wealth management companies in Hong Kong grew by approximately 15% year-on-year to about HK$3.1 trillion, indicating that Hong Kong has progressively become an important base for Mainland institutions expanding their international businesses.

The government has stated that Hong Kong will mobilize its overseas networks, including InvestHK, the Hong Kong Trade Development Council (HKTDC), and overseas offices, to strengthen outward promotion and investment attraction, and will continue to promote the development of family offices and high-end wealth management. Concurrently, the government has noted that Hong Kong, leveraging its advantages of "backing the motherland and connecting to the world," serves the nation's dual circulation development paradigm and Belt and Road Initiative, functioning as an offshore RMB, asset management, risk management, and financing and investment platform.

Building on this, the Association recommends that the government elevate "asset management going global" to a clearer policy direction. Specifically, the Financial Services and the Treasury Bureau, in conjunction with InvestHK, the HKTDC, and industry bodies, could establish a "Going Global Asset Allocation Service Platform" targeting high-quality private enterprises, family businesses, industrial capital, and local State-Owned Enterprises (SOEs) from the Mainland. This platform would concentrate on promoting Hong Kong's advantages in global fund structures, cross-border tax coordination, family trusts, philanthropic structures, risk hedging, and multi-currency asset allocation. Furthermore, Hong Kong could leverage its established mutual fund recognition (MFR) arrangements with multiple jurisdictions, including the UK, Luxembourg, Ireland, France, Switzerland, and the UAE, to assist funds domiciled and managed in Hong Kong in accessing overseas markets more effectively, thereby positioning Hong Kong as a crucial asset management hub for Chinese capital going global.

Another feasible direction is to encourage, through policy, the Hong Kong asset management industry to develop products and services with greater international distribution capabilities. Examples include RMB asset strategies for investors in the Middle East, ASEAN, and Europe; Asian multi-asset funds; family succession and wealth preservation solutions; and cross-border products integrating green finance with infrastructure investment. If the government can simultaneously leverage policy, promotion, and institutional support, Hong Kong could not only attract external capital but also become the preferred platform for Mainland and regional capital seeking global allocation. This would further elevate Hong Kong's strategic position in the Asian asset management market and better align with the macro objectives of "high-level opening-up" and "financial services for Belt and Road cooperation" outlined in the national 15th Five-Year Plan.

Conclusion

In summary, Hong Kong's asset and wealth management industry has a solid foundation and has demonstrated encouraging momentum with simultaneous growth in AUM and net fund inflows, as reflected in the latest data. However, against the backdrop of a restructuring global competitive landscape and the nation's entry into a new development phase, policy support must be more forceful, deeper, and more sustainable. The Association hopes that the HKSAR Government will actively respond to industry concerns in its new Policy Address, by extending and increasing OFC subsidies, continuously waiving SFC licensing fees, improving the tax regime, deepening connectivity and product innovation, and incorporating financial asset management "going global" into its policy priorities. Crucially, the development of asset management should be clearly positioned within the overarching framework of proactively aligning with the national 15th Five-Year Plan and the "Hong Kong Five-Year Plan." This will attract more international capital, fund platforms, professional talent, and high-value-added financial functions to Hong Kong, further cementing its leading position as an international asset and wealth management centre.

Optimizing Hong Kong's Asset Management and Innovation & Technology Ecosystem: Addressing Industrial Gaps and Building an End-to-End Sci-Tech Capital Development System

Hong Kong continues to strengthen its development strategy of "finance empowering I&T, and I&T driving asset management upgrading." Through tax incentives, government seed funding, venture capital fund matching, and various other initiatives, the city supports original 0-to-1 research projects spanning AI, robotics, high-end medical devices, and other fields, while concurrently attracting global angel funds and venture capital (VC) firms to establish a presence in Hong Kong.

At present, Hong Kong possesses robust foundational research resources, incubation programs, and tax advantages for innovation and venture capital. However, notable industrial gaps remain: a disconnect between high-quality original projects and global capital, a lack of systematic post-investment management following the disbursement of government seed funding, and the inability of start-ups to rapidly tap into the vast Mainland Chinese market. These issues cause numerous high-quality 0-to-1 technologies to stall at the prototype stage, struggling to achieve commercialization, financing upgrades, and public listings, thereby constraining the transformation and upgrading of Hong Kong's asset management industry toward technology equity investment.

The following are three optimization recommendations proposed by our association to address these pain points, aiming to build an end-to-end closed-loop ecosystem encompassing "original R&D — precise capital matching — full-cycle post-investment nurturing — GBA market implementation — Hong Kong Stock Exchange listing and exit," thereby truly unleashing the synergistic potential of Hong Kong's I&T and asset management industries.

I. Current Policy Gaps: Fragmented Matching Mechanisms Between Seed Projects and Global Angel and Venture Capital

Hong Kong's existing Technology Start-up Support Scheme for Universities (TSSSU) and the Research, Academic and Industry Sectors One-plus Scheme (RAISe+) have already provided sufficient initial seed funding for 0-to-1 original projects by university students, supporting teams in completing technology prototypes, patent applications, and foundational R&D. Simultaneously, tax exemption regimes for venture capital and the government's Innovation and Technology Venture Fund provide tax and funding support to facilitate global capital's entry into Hong Kong for I&T project investment.

However, the current core gaps are concentrated in information asymmetry and a lack of matchmaking channels. A significant number of Hong Kong's original projects in medical devices, AI robotics, specialized algorithms, and other new technologies remain circulated only within universities or the science parks, lacking normalized platforms for showcasing and exchange with global angel investors and early-stage VCs. Overseas angel funds and cross-border VC institutions have insufficient understanding of the technological value, R&D progress, and implementation potential of Hong Kong's local 0-to-1 projects. Consequently, after completing initial R&D, most quality seed projects fail to successfully secure subsequent angel or VC rounds, falling into a predicament of "having technology, lacking capital, struggling to grow," leading to the waste and idleness of substantial original research outcomes.

Optimization Recommendation: Establish an Official and Regular Capital Matching Platform to Unblock Project Financing Channels

Building upon existing funding policies, dedicated resources should be added to establish an institutionalized, regularized, and internationalized project-capital matching mechanism.

First, Hong Kong Cyberport Management Company or the Hong Kong Science and Technology Parks Corporation could take the lead in organizing quarterly Hong Kong Original Technology Global Financing Matching Summits, focusing specifically on 0-to-1 new technology projects developed by universities. These summits would specifically invite angel funds and early-stage VCs from Europe, the Americas, Southeast Asia, and Mainland China to participate, featuring technology roadshows, one-on-one due diligence sessions, and closed-door matchmaking, with a spotlight on world-first medical devices, intelligent robotics, and industry-specific AI technologies, thereby resolving information opacity.

Second, an annual Hong Kong University Student Original Sci-Tech Competition should be established to screen quality 0-to-1 projects for inclusion in an official quality project database, which would be proactively and precisely promoted to global VC institutions, family offices, angel funds, and other investors, enhancing the international recognition of these projects.

II. Current Policy Gaps: Heavy Emphasis on Seed Funding, Light on Post-Investment Management, Lacking Full-Cycle Growth Support

Existing government funding is largely "one-off seed grants," lacking ongoing follow-up services and growth mentoring after disbursement. Hong Kong's I&T support system currently exhibits a phased gap: after receiving government seed funding, projects can only complete basic R&D, yet there is no dedicated official support channel throughout the entire process of securing angel financing, VC expansion, private equity (PE) investment, industrial implementation, and listing applications.

Many start-up teams excel in technological R&D but lack experience in business operations, financing negotiations, financial compliance, and intellectual property management. Even if they successfully attract angel funding, they struggle to operate stably and grow sustainably, failing to evolve from early-stage start-ups into sci-tech enterprises with listing potential. This ultimately leads to the premature failure of numerous projects and undermines overseas capital's long-term confidence in Hong Kong's early-stage I&T investment, which is detrimental to the long-term development of Hong Kong's equity and asset management industries.

Optimization Recommendation: Establish a Government-Led "End-to-End" Full-Cycle Post-Investment Nurturing System

It is recommended to establish a dedicated full-cycle post-investment service unit for original sci-tech enterprises to achieve continuous follow-up support from the seed stage through to listing and exit, addressing the post-investment shortcomings.

First, early-stage financing accompaniment services. After a project receives government seed funding, official industrial advisors and financing advisors would be assigned to help the team refine its business model, polish the business plan, connect with suitable angel funds and VCs, and assist throughout the financing matching and due diligence coordination process, thereby increasing the success rate of financing.

Second, refinancing upgrading services. After a company completes angel and VC rounds, the government would assist in connecting with industrial resources, pilot platforms, and technical testing/certification bodies, while also linking with domestic and international PE institutions to help the company achieve scale-up financing, technology mass production, and scenario implementation.

Third, late-stage listing and exit services. For mature sci-tech enterprises, the government would provide listing advisory services, compliance coaching, and policy connection support to assist eligible local 0-to-1 original technology companies in going public in Hong Kong, perfecting the complete "R&D — financing — growth — listing" closed loop.

Through full-process post-investment accompaniment, the commercialization shortcomings of start-up teams would be addressed, improving the survival rate and exit efficiency of Hong Kong's I&T projects. This would, in turn, attract more global long-term capital to establish a presence in Hong Kong and strengthen the technology equity investment segment of the local asset management industry.

III. Current Policy Gaps: Disconnect Between Hong Kong/Macao Research and the Mainland Market, Slow Industrial Implementation

Hong Kong possesses top-tier research capabilities and international capital advantages, but its small market size and limited industrial scenarios make it difficult to support large-scale testing and commercial implementation of projects in AI, robotics, high-end medical devices, and other fields.

Currently, the majority of Hong Kong's original projects are confined to local R&D and fail to rapidly connect with the Mainland's vast application scenarios, industrial supply chains, and consumer markets. This results in slow technological growth and difficulty in scaling revenue, significantly reducing attractiveness to global VC and PE investors, while also squandering Hong Kong's unique advantage of being situated within the Greater Bay Area (GBA).

Optimization Recommendation: Strengthen GBA Policy Integration and Open Fast-Track Channels for Mainland Industrial Implementation

Deepen the alignment of Hong Kong's I&T sector with the GBA's markets, industries, and policies to unlock broad development space for local 0-to-1 original projects.

First, streamline cross-border R&D and implementation processes. Optimize cross-border support policies, lower the barriers for Hong Kong original projects to enter the GBA, and allow Hong Kong research outcomes, medical device prototypes, and AI technology solutions to prioritize clinical testing, scenario trials, and industrial trial production within the GBA, leveraging the Mainland's complete manufacturing industrial chain to accelerate technology commercialization.

Second, facilitate cross-border tax and funding interoperability. Optimize R&D tax deduction rules to allow Hong Kong start-ups to deduct R&D and technology implementation costs incurred in the GBA from their taxable income, reducing cross-border operational costs. Simultaneously, align with Mainland I&T support funds to enable dual empowerment from both Hong Kong government funding and GBA sci-tech subsidies.

Third, mobilize GBA industrial capital. With government leadership, regularly organize Hong Kong original projects to visit GBA industrial parks, leading enterprises, and Mainland VC institutions to promote technology implementation cooperation, industrial mergers and acquisitions, and strategic financing. This would enable Hong Kong's 0-to-1 cutting-edge technologies to rapidly achieve "large-scale implementation in the Mainland and global capital exit," substantially enhancing the investment value and growth velocity of these projects.

Conclusion

Hong Kong has established a solid policy framework for original I&T development and global capital aggregation. The city does not lack R&D talent, seed funding, or tax advantages. The core shortcomings lie in capital matching is not smooth, incomplete post-investment nurturing, and insufficient market implementation.

Our association hopes to see improvements in these areas. By addressing the three major industrial gaps — establishing a regularized international financing matching mechanism to resolve the information disconnect between projects and capital; building a full-cycle, end-to-end post-investment service system to bridge the complete growth chain from seed, angel, VC, and PE through to listing; and deeply integrating with GBA market and industrial resources to enable rapid implementation of local original technologies — Hong Kong can fundamentally reverse the situation of "heavy R&D, light commercialization, difficult implementation, and slow exits."

Through these policy optimizations, Hong Kong can thoroughly transform its I&T industry landscape, deeply intertwine its international finance and asset management strengths with original I&T, and establish itself as an international sci-tech capital hub characterized by "original research, capital aggregation, industrial implementation, and global exits." This will open up new technology equity investment avenues for Hong Kong's asset management industry and drive high-quality economic transformation and upgrading.

Digital Finance

Strengthening regulations and the development roadmap

As Hong Kong's strategic positioning in Web3.0, Distributed Ledger Technology (DLT), and Artificial Intelligence (A.I.) gradually takes shape, 2026 will be a critical inflection point for Hong Kong's fintech sector, marking its transition from "infrastructure development and compliance implementation" to "market prosperity and advanced applications." The industry warmly welcomes and fully supports the various policies recently promoted by the Financial Services and the Treasury Bureau (FSTB), the Securities and Futures Commission (SFC), and the Hong Kong Monetary Authority (HKMA), including the implementation of the VATP licensing regime, the launch of the secondary market for tokenized funds, and the "Fintech Promotion Blueprint."

To further realize the "Fintech 2030" vision, strengthen and expand Hong Kong's digital finance sector, and ensure that Hong Kong's tokenized asset (RWA) market is not only "compliant" but also "efficient and commercially viable," our association puts forward the following policy recommendations across three core areas:

Priority One: Virtual Assets and Web3 — From "Compliance Implementation" to "Market Prosperity"

Now that the VATP licensing regime and secondary market trading for tokenized funds (RWA) have been launched, the next phase of policy focus should be on expanding market scale and addressing liquidity pain points.

1. Expand the Types of Tokenized Products and Market Scale

Currently, secondary market trading is mainly confined to "SFC-authorized open-ended public funds." It is recommended that Hong Kong draw on the experience of Nasdaq and the New York Stock Exchange (NYSE) in actively promoting the tokenization of securities, encouraging and approving the listing and trading of a more diverse range of tokenized products to enrich investor choice.

2. Accelerate Wholesale Central Bank Digital Currency (wCBDC) Application to Achieve T+0 Atomic Settlement
The biggest pain point in the RWA market currently is the liquidity dilemma. Only when "funds" are also tokenized can the advantages of DLT's 24/7 trading and "delivery versus payment" be truly realized, eliminating counterparty risk. It is recommended that in 2026, the commercial rollout scope of the HKMA's "Project Ensemble" sandbox be significantly expanded. Drawing on the experience of the Swiss SIX Digital Exchange (SDX), which routinely uses wCBDC for T+0 settlement of tokenized bonds, we should promote the direct integration of wCBDC or regulated institutional-grade stablecoins with real RWA trading platforms, building Hong Kong's "tokenized financial highway."

3. Formulate "Smart Contract Security and Standardization Guidelines"

In the future, dividend payments and corporate actions for tokenized securities will heavily rely on the automated execution of smart contracts, shifting risks from traditional "credit risk" to "technical risk." It is recommended that the SFC, drawing on the experience of the Monetary Authority of Singapore's (MAS) Project Guardian, consult on and issue relevant guidelines requiring that RWA products offered to the public undergo code audits by recognized third-party institutions before issuance. Additionally, a unified smart contract standard code library should be established to prevent systemic technical vulnerabilities arising from fragmented industry practices.

Priority Two: Improve the DLT Legal Framework — Establish the Legal Status of Property Rights and Settlement Finality

In line with the first-phase review of DLT completed by the FSTB and HKMA in 2026, the next step must fundamentally address the common law framework to remove legal ambiguities for the widespread application of fixed-income markets and digital assets.

1. Legislate to Establish DLT Assets as a "Third Category of Personal Property"

Under traditional common law, property is divided into "choses in possession" and "choses in action." Tokenized assets on DLT are neither physical nor merely a contractual claim against the issuer, leading to legal classification ambiguity. It is recommended that the government, drawing on the principles of the UK Law Commission and the International Institute for the Unification of Private Law (UNIDROIT), promote the enactment of a "Digital Assets Property Rights Ordinance" or issue binding practice directions from the High Court to formally establish them as a "third category of personal property." Concurrently, it should be clearly defined that holding a "Private Key" or exercising transfer rights through a smart contract is legally equivalent to "substantial control and ownership" of that asset.

2. Clearly Define "Settlement Finality" on the Blockchain

Settlement finality concerns the precise moment when funds or assets formally and irrevocably become the property of the recipient. In traditional systems, this occurs at the moment the clearing house records are updated; however, on a blockchain, transactions require node validation and packaging. The government needs to clarify from a legal standpoint: does settlement finality legally occur at the moment the smart contract executes, or after the block has received a specific number of confirmations? This is crucial for interest calculations and default determinations in the fixed-income market. It is recommended to provide clear legal definitions of the "point of settlement irreversibility" tailored to different blockchain architectures.

3. Address "Conflict of Laws" Issues for Cross-Border DLT Nodes

DLT nodes are distributed globally, which can easily lead to jurisdictional disputes in the event of settlement disputes. It is recommended that the government establish a principle based on either "the location of the system operator" or "the jurisdiction explicitly stipulated in the smart contract" and legislate to affirm the recognition of such choices by Hong Kong courts. This would solidify Hong Kong's legal certainty as an international center for tokenized bond issuance.

Priority Three: Fully Implement the "Fintech Promotion Blueprint" — Strengthen Infrastructure, Data, Compliance, and Talent

In response to the "Fintech Promotion Blueprint" published by the HKMA in February this year, the industry recommends that the government provide the following substantial support through cross-departmental collaboration and resource allocation:

1. Build Public Intelligent Computing Power and Quantum‑Safe Transition Infrastructure

Advanced A.I. analytics and complex DLT networks are highly dependent on computing power, which is unaffordable for small and medium‑sized institutions. It is recommended to allocate funds to expand the High‑Performance Computing (HPC) / Artificial Intelligence Supercomputing Centre (AISC) at Cyberport or the Science Park, and establish a "Financial Dedicated Computing Quota" to subsidize compliant institutions in training industry‑specific large models. Simultaneously, to address the transition to Post‑Quantum Cryptography (PQC), establish a "Financial Industry Quantum‑Safe Transition Special Fund" to subsidize banks and cybersecurity vendors in system upgrades and stress testing, ensuring the absolute security of Hong Kong's financial system in the quantum era.

2. Build a Greater Bay Area Cross‑Border Financial Data Sandbox and Unified Exchange Platform

High‑quality data is the fuel for A.I. and DLT. It is recommended that the government establish a standardized framework for data desensitization and federated learning, enabling banks to jointly train anti‑money laundering and risk management models without sharing raw customer data. Furthermore, actively negotiate with the Mainland to allow, within specific sandbox environments, the cross‑border flow of compliant financial data within the Greater Bay Area, thereby enhancing the accuracy of cross‑border credit assessment and risk monitoring.

3. Launch a "Fintech Compliance and Certification Scheme"

The industry acknowledges the "Fintech Cybersecurity Baseline" soon to be introduced by the HKMA, but high standards will impose a heavy compliance burden on startups. It is recommended that the Innovation and Technology Bureau provide dedicated funding to fully or partially subsidize local fintech companies for baseline certification and code audits, rapidly fostering a local supply chain ecosystem that meets high security standards.

4. Implement a "Next‑Generation Fintech Human‑Machine Collaboration Talent Development Programme"

Future financial practitioners need capabilities in "human‑machine interaction" and "model supervision." It is recommended to substantially expand the scope of the Continuing Education Fund (CEF) in advanced fintech areas (covering prompt engineering, smart contract auditing, A.I. ethics and governance, etc.). Simultaneously, facilitate collaboration between the HKMA, local universities, and major financial institutions to integrate the practical guidelines of the Blueprint into compulsory modules for degrees and professional qualifications, ensuring the talent pool seamlessly meets the demands of "Fintech 2030."

Conclusion

2026 represents a golden window for Hong Kong's financial industry to embrace disruptive technologies and achieve leapfrog development. By improving the legal framework, upgrading the underlying infrastructure, breaking down data silos, and cultivating multi‑disciplinary talent, we are confident that Hong Kong can transform Web3 and A.I. technologies into an irreplaceable international competitive advantage. Our association sincerely hopes that the HKSAR Government will adopt the above recommendations in the new Policy Address, working hand in hand to build a prosperous, secure, and efficient new‑generation intelligent financial hub.

Virtual Assets and Digital Finance Development

The global virtual asset market is evolving at an unprecedented pace, with intense competition among jurisdictions in both market development and regulation. Hong Kong’s market and regulatory frameworks must demonstrate equal agility and speed to seize the window of opportunity in this global race and establish itself as a virtual asset hub.

The HKSAR Government published the Policy Statement on Development of Virtual Assets in Hong Kong in October 2022 and subsequently launched the Policy Statement 2.0 on the Hong Kong Digital Asset Development in June 2025, adopting the "LEAP" framework to articulate the vision of building Hong Kong into an international virtual asset hub. The Securities and Futures Commission (SFC) also issued the "ASPIRE" roadmap in February 2025, advancing the regulatory framework across five pillars: Access, Safeguards, Products, Infrastructure, and Relationships. Our Association strongly supports these government policy directions and hereby puts forward the following recommendations from an industry perspective, with a view to accelerating policy implementation and attracting the world's leading virtual asset platforms, institutions, and service providers to Hong Kong.

For Hong Kong to evolve from a "regulatory pioneer" to a "market leader," the key lies in three imperatives: speed, connectivity, and comprehensiveness: product approvals must be fast, asset liquidity flows must be free, and the institutional infrastructure must be comprehensive. Specific recommendations are as follows:

(I) Accelerate Product Approvals and Enrich the Virtual Asset Ecosystem

1. Expand the scope of approvals: Leading global platforms are integrating full-spectrum products at an unprecedented pace. Coinbase, for instance, is transitioning from a pure cryptocurrency exchange into an "Everything Exchange," with a business scope covering crypto spot trading, perpetual contracts, options (via the acquisition of derivatives platform Deribit), tokenised stocks, stablecoin payments, and even prediction markets, offering one-stop, 24/7 trading. To attract such flagship platforms to Hong Kong, product approvals should not be limited to new tokens but must also encompass tokenised products, virtual asset derivatives, perpetual contracts, and tokenised stocks. Otherwise, top-tier platforms will only deploy their new product lines in other jurisdictions, rendering Hong Kong's "hub" status superficial.

2. Seize the first-mover advantage in tokenised stocks: Tokenised stocks have become a focal point of competition among global exchanges, with multiple international platforms having launched or are preparing such products to enable 24/7 fractional trading of stocks. We urge the authorities to clarify as soon as possible the regulatory classification of tokenised stocks, as well as the specific arrangements for issuance, trading, custody, and settlement, so that Hong Kong can take the lead in this emerging arena.

3. Conduct early research on regulating prediction markets: Meta's announcement of its entry into prediction markets signals that event contracts are moving from a niche market to the mainstream. When social platforms with vast user bases also become distribution channels of prediction products, their growth potential cannot be overlooked. Hong Kong currently lacks a clear regulatory position on prediction markets, and related products fall into a grey area between the Gambling Ordinance and financial regulations. We recommend that the authorities conduct early research on their legal classification—whether they constitute securities, derivatives, or a standalone product category—and on the licensing framework, while also drawing on overseas regulatory experiences for regulated prediction markets, so as not to miss out on innovative product opportunities due to regulatory quiescence.

4. Establish an external product approval committee: We urge the authorities to promptly fix the committee's establishment timeline, the date for commencing acceptance of applications, and the list of product categories subject to committee approval, so as to provide clear expectations for the industry. Product life cycles of international platforms are on a monthly or even weekly basis, and Hong Kong's approval pace must keep up with the speed of market innovation.

5. Streamline product approvals for professional investors: The SFC's current approval process for virtual asset products is relatively lengthy, which may hinder industry growth. Professional investors possess the corresponding risk tolerance, and related products should be subject to a fast-track approval channel with prescribed timelines, without the imposition of overly burdensome restrictions.

6. Implement perpetual contracts and margin trading: Although the SFC has published a regulatory framework for such products, the "devil is in the details," with numerous implementation issues yet to be clarified, and no such products have actually been launched to date. In contrast, overseas platforms have already introduced perpetual contracts under regulated frameworks and have seen rapid volume growth. We urge the authorities to publish a clear implementation timeline and translate the regulatory framework into operational guidelines as soon as possible.

7. Expand yield-enhancing products: We urge the authorities to set a timeline for extending regulatory coverage to virtual asset lending businesses and non-securities structured products, in response to strong market demand for yield-enhancement tools.

8. Review capital requirements for OTC derivatives: Under the proposed OTC derivatives regime, derivatives with virtual assets as the underlying assets will be brought under regulation. However, the current capital requirements rank among the highest globally, which may prompt traditional finance and Web3 stakeholders to consider re-domiciling their business substancesoffshore. We urge the authorities to recalibrate these capital requirements to prevent business outflow and avoid weakening Hong Kong's competitiveness.

(II) Make Capital Rules "Fit for Purpose" for Virtual Assets

1. Professional investor qualification: Under the current professional investor rules, virtual assets are not counted when assessing asset holdings. As virtual assets are gradually being accepted as a legitimate asset class, certain highly liquid, readily accessible virtual assets tradable on regulated platforms should be recognised towards the professional investor asset calculation. At present, a significant portion of the assets held by many native Web3 stakeholders remains in virtual assets rather than cash. If the regime fails to recognise this, these experienced participants would be excluded from products suited to them purely based on the form (rather than the substance) of their assets, which is inequitable.

2. Revise the Securities and Futures (Financial Resources) Rules (FRR): We recommend that highly liquid, exchange-traded virtual assets (e.g., Bitcoin, Ethereum, and major stablecoins) be included as qualifying liquid assets. As Web3-native enterprises often hold their treasury and capital reserves predominantly in virtual assets, mandating conversion into fiat currency to meet capital requirements would trigger unnecessary tax events, liquidity costs, and operational inconvenience, posing a significant disincentive to applying for licences in Hong Kong. Recognising virtual assets as qualifying capital would remove this key barrier and directly enhance Hong Kong's appeal as a virtual asset hub.

3. Capital feasibility for margin trading: The current FRR requirements may render virtual asset margin trading commercially unviable. We urge the authorities to review the capital requirements applicable to virtual asset margin businesses and announce a timeline for adjustments, so that businesses which have received in-principle approval can actually commence operations.

(III) Connect to Global Liquidity Pools to Enhance Market Depth

1. Expand access to overseas liquidity: Currently, licensed platforms may only access liquidity from their overseas affiliates In other words, local platforms can only connect to their group's overseas entities and are not allowed to connect to other major international platforms, which is of limited utility. We recommend that, subject to appropriate due diligence and safeguards, licensed operators be progressively permitted to access overseas licensed virtual asset trading platforms or liquidity providers, in order to improve pricing efficiency and market depth.

2. Establish a clear safeguard framework: With respect to accessing unaffiliated overseas liquidity, the authorities could prescribe due diligence criteria (including the regulatory standards of the counterparty's jurisdiction, anti-money laundering compliance, asset custody arrangements, financial soundness, etc.) and progressively open up access in a risk-controllable manner, thereby enabling Hong Kong's market to truly integrate into the global virtual asset liquidity pool.

(IV) Accelerate the Construction of Digital Financial Infrastructure and Enable 24/7 On-Chain Settlement

1. Build a blockchain-based clearing and settlement system: The development of international platforms has clearly demonstrated that trading, settlement, and custody are converging on-chain—with stablecoins as the settlement layer and blockchain networks as the infrastructure backbone, enabling 24/7 real-time settlement. The traditional "T+2" settlement cycle and trading hours restrictions will progressively erode competitiveness. Hong Kong should accelerate the development of similar infrastructure so that all on-chain products, including cryptocurrencies, stablecoins, and tokenised assets, can achieve real-time settlement 24 hours a day, 7 days a week.

2. Utilise licensed stablecoins as on-chain settlement assets: Leveraging the implementation of the Stablecoins Ordinance, we should promote the use of licensed stablecoins as settlement instruments for on-chain delivery, enabling delivery-versus-payment (DvP), and facilitate interoperability between stablecoins, tokenised deposits, and the whole CBDC, thereby building a multi-tiered on-chain settlement system.

3. Bridge traditional and on-chain infrastructure: Building on pilot projects such as tokenised bonds, we should promote interoperability between traditional financial infrastructure and on-chain infrastructure, allowing tokenised securities, funds, and real-world assets (RWA) to circulate within the same clearing and settlement system, thereby consolidating Hong Kong's foundational advantage as an on-chain financial centre.

4. Make "financial security" a core competitive advantage of the infrastructure: With Hong Kong's virtual asset regulatory framework becoming increasingly comprehensive, the next step is to embed “compliance and security by design” in the infrastructure layer, including on-chain transaction monitoring, custody security standards, wallet address screening, and cybersecurity requirements. As global institutional investors place growing emphasis on the security and compliance of on-chain assets, "security" is precisely Hong Kong's greatest differentiator from offshore markets: only by making the infrastructure itself trustworthy can we attract international capital to settle with confidence, making Hong Kong a true virtual asset hub that balances efficiency and financial security.

(V) Expedite the Completion of the Virtual Asset Regulatory Landscape

1. Set out a clear legislative timeline: We urge the authorities to complete as soon as possible the regulations and licensing regimes for over-the-counter (OTC) trading, virtual asset custody, virtual asset lending, and virtual asset payment services, so as to eliminate regulatory gaps and provide market participants with clear legal guidelines.

2. Establish a dedicated licensing pathway for virtual asset payment companies: There is currently no dedicated licensing pathway for virtual asset payment companies, yet an increasing number of such companies are seeking compliance status and licences. Under the current system, many companies face practical AML difficulties concerning third-party deposits and withdrawals. We recommend establishing a dedicated licence category and adopting a risk-based approach to managing money laundering risks (e.g., regulated source-of-funds verification, wallet address screening, and on-chain transaction monitoring technology), thereby allowing compliant payment businesses to thrive while effectively mitigating risks.

(VI) Optimise the Existing Licensing Regime to Facilitate Business Development

1. Clarify and expand the scope of "virtual asset trading": Under the current understanding, licensed corporations providing virtual asset trading services are limited to conducting such activities through omnibus accounts maintained with Hong Kong-licensed virtual asset trading platforms. We recommend broadening the scope of "virtual asset trading" to explicitly include activities such as the distribution of virtual asset products, so that the regulatory definition aligns with business realities.

2. Conduct a comprehensive review of various licensing arrangements: We recommend a full-scale optimisation of the regulations and licensing conditions relating to virtual asset trading platform operators, virtual asset asset management, virtual asset trading, and advising on virtual assets, with a view to streamlining licensing procedures, expediting approval processes, and enhancing certainty, thereby making it easier for existing licensed companies and those intending to apply for licences in Hong Kong to commence and expand their businesses.

In the face of a rapidly evolving global virtual asset market and intensifying competition among jurisdictions, Hong Kong—with its solid foundation, open institutions, and infrastructure-first approach—can remain unperturbed and embrace opportunities from all corners. Our Association earnestly requests the Chief Executive of the HKSAR Government to adopt the above recommendations and implement the vision articulated in the two virtual asset policy statements "Faster, Higher, Stronger", so as to build Hong Kong into a world-leading virtual asset hub.

Green Finance

Global climate change has evolved from an environmental issue into a core factor affecting financial stability and economic competitiveness. Data from the International Energy Agency show that global clean energy investment reached USD 2.1 trillion in 2024, with the green finance market projected to expand to USD 28.7 trillion by 2033. At the same time, the advancement of the national "Dual Carbon" goals, the implementation of the EU Carbon Border Adjustment Mechanism, and the widespread adoption of ISSB disclosure standards all present new demands and opportunities for Hong Kong as an international financial centre.

Hong Kong has already made remarkable progress in green finance—the successful issuance of three batches of tokenised green bonds, the publication of Phase 2A of the Hong Kong Taxonomy for Sustainable Finance, and the release of the Transition Finance Operational Reference Guide all demonstrate the determination and execution capability of the HKSAR Government and its regulators. However, in the face of accelerating global green transition and intensifying market competition, Hong Kong must further refine its policy framework, expand product innovation, strengthen cross‑border connectivity, and ensure that the benefits of green finance reach all sectors of society.

As a professional organisation representing the securities and futures industry in Hong Kong, our Association has consolidated the views of industry practitioners, academics, and regulatory experts to present specific recommendations across nine domains. We hope these recommendations will serve as a reference for the 2026 Policy Address, assisting the HKSAR Government in consolidating Hong Kong's position as a world‑leading green finance hub, contributing to the achievement of the national "Dual Carbon" goals, and injecting new momentum into the sustainable development of Hong Kong's economy.

I. Policy Framework and Strategic Positioning

Establishing Green Finance as a Core Competitiveness Pillar

As an international financial centre, Hong Kong must elevate green finance to the same strategic level as traditional finance. The global green finance market is expanding at an annual rate exceeding 20%, projected to reach USD 28.7 trillion by 2033. Hong Kong has successfully issued three batches of tokenised green bonds totalling approximately USD 2.1 billion, setting a leading example for government issuance globally. The Policy Address should explicitly declare "Green Finance Hub" as a core development objective for the next five years, and embed this into the financial supporting measures of the "Hong Kong Climate Action Plan 2050". We recommend establishing a "Green Finance Coordination Office" under the leadership of the Financial Secretary, integrating resources from the HKMA, SFC, HKEX, and the Environment Bureau to formulate a cross-year green finance action plan, ensuring policy coherence and implementation efficiency.

Strengthening Alignment with the National "Dual Carbon" Strategy

Hong Kong must proactively connect with the national goals of carbon peaking by 2030 and carbon neutrality by 2060, fully leveraging its role as a "super-connector". The Policy Address should explicitly support Hong Kong as an international financing platform for the nation's green transition, particularly targeting transition financing needs for high‑emission industries in the Greater Bay Area. We recommend establishing regular communication mechanisms with the People's Bank of China and the National Financial Regulatory Administration to promote mutual recognition between Hong Kong's green finance standards and the national "Green Finance Supported Project Catalogue (2025 Edition)", and to explore the establishment of a pilot "National Green Finance Innovation Zone" in Hong Kong, permitting cross‑border green capital pilots on a trial basis.

II. Refinement of Green Standards and Taxonomies

Full Implementation of the Hong Kong Taxonomy for Sustainable Finance Phase 2A

The HKMA officially published the Hong Kong Taxonomy for Sustainable Finance Phase 2A on 22 January 2026, classifying economic activities into three categories: "Green", "Transition", and "Exclusion", and incorporating transition elements and a climate change adaptation category. Respondents to the consultation broadly supported the expansion in taxonomy coverage. We recommend that the Policy Address explicitly require financial institutions to actively adopt the Phase 2A Taxonomy for green asset identification, and to incorporate it into the banking supervisory assessment framework. At the same time, efforts should be made to promote further convergence of the Taxonomy with the Multi‑Jurisdiction Common Ground Taxonomy, particularly with EU, Singapore, and Mainland China standards, to reduce compliance costs for cross‑border green investment.

Establishing a Unified Labelling System for Green Financial Products

The current market suffers from confusing labels for green bonds, sustainability‑linked loans, transition bonds, and other products, creating greenwashing risks. We recommend that the Government authorise the SFC and HKEX to jointly launch a "Green Financial Product Certification Scheme", granting official certification marks to products that meet taxonomy criteria, and establishing a public product register. This system should reference the ICMA Green Bond Principles and relevant guidelines from China's National Association of Financial Market Institutional Investors, ensuring local standards align with international best practices.

III. Product Innovation and Market Development

Scaling Up and Regularising Digital Green Bond Issuance

Hong Kong has successfully completed three landmark tokenised bond issuances. The third digital green bond issuance in 2025 totalled approximately HKD 10 billion and was 13 times oversubscribed, and was the first digital bond to integrate tokenised central bank money in the form of e‑CNY and e‑HKD. The HKMA established a Tokenised Bond Expert Group in June 2026, bringing together industry representatives to further promote the application and expansion potential of tokenised bonds in Hong Kong. We recommend that the Policy Address announce the inclusion of tokenised green bonds in the regular issuance schedule, with expansion into more currency denominations and tenor varieties, as well as connectivity with other tokenisation platforms in the region. At the same time, secondary market liquidity should be enhanced by considering stamp duty exemptions for tokenised bond trading.

Vigorously Developing Transition Finance Products

The Cross‑Agency Steering Group published the "Transition Finance Operational Reference Guide – Phase 1 Report" on 15 May 2026, selecting the ICT sector as the pilot industry, providing a practical toolkit for financial institutions and corporates to operationalise global frameworks and principles in transition finance. The Report builds on the Steering Group's strategic priorities for 2026 to 2028. We recommend that the Policy Address support the gradual expansion of the guidance to more sectors (such as steel, cement, shipping, aviation, etc.), and explicitly extend the coverage of the existing "Green and Sustainable Finance Grant Scheme" to transition products.

Promoting Digitalisation and Cross‑Border Connectivity of Carbon Emissions Trading

HKEX's "Core Climate" platform has become a significant participant in the international voluntary carbon market. As of March 2026, Core Climate's cumulative carbon credit trading volume had exceeded 1 million tonnes, with over 130 registered participants. HKEX is working closely with carbon exchanges in the Greater Bay Area to actively explore pilot cross‑border carbon trading settlement pathways, with the aim of completing pilot projects within 2026. We recommend supporting the platform to establish connectivity mechanisms with the national Emissions Trading System and the carbon markets of Guangzhou and Shenzhen, enabling cross‑border trading and settlement of carbon allowances and credits. Furthermore, the use of blockchain for tokenised carbon credits should be explored, and consideration should be given to including carbon credits in Hong Kong's financial collateral framework.

IV. Incentive Mechanisms and Financial Support

Optimising and Expanding the Green Finance Subsidy Scheme

Further enhancements to the Grant Scheme took effect on 24 April 2026. The revised guideline places greater emphasis on alignment with the Hong Kong Taxonomy: up to 75% subsidy applies to issuances aligned with the Hong Kong Taxonomy, while up to 50% subsidy applies to issuances aligned with other applicable internationally‑recognised taxonomies. Track II coverage has been expanded to include pre‑issuance sustainability advisory services, such as framework design, transition planning, and KPI/SPT development. As of end‑April 2026, the Scheme had approved subsidies exceeding HKD 440 million for over 700 debt instruments, with total debt value exceeding USD 200 billion. The training pilot scheme has been extended to 2028, with over 10,400 approved applications and subsidies exceeding HKD 59 million. We recommend that the Policy Address further refine the Scheme's coverage, particularly providing more targeted support for SMEs regarding the subsidy ratio adjustments.

Introducing Tax Incentives for Green Finance

We recommend introducing a "Patent Box" tax regime, applying a reduced profits tax rate of 5% to qualifying income derived from green patents and sustainable technology intellectual property (similar to the existing Patent Box regime). Furthermore, institutional investors should be granted profits tax exemption on investment income derived from Hong Kong‑accredited green projects, to attract more international capital.

Issuing Green Sovereign Bonds and Establishing a Benchmark Curve

The central government issued its first green sovereign RMB bond in London in 2025. Hong Kong should actively seek to issue green sovereign bonds denominated in HKD and RMB on the local market, and establish a complete green bond yield curve to provide a pricing benchmark for corporate green bond issuance.

V. Talent Development and Capacity Building

Integrating and Recognising Green Finance Professional Qualifications

The market has seen the emergence of voluntary professional certification systems, including the CFA Institute's Certificate in ESG Investing (recognised by the Government's subsidy scheme), the HKGFA‑HKUST Certificate in Sustainable Finance (now in its seventh cohort), and various executive green finance programmes offered by HKU SPACE. We recommend that the Government integrate and recognise existing green finance professional certifications and establish a unified qualifications framework reference standard. At the same time, the existing training pilot scheme should be expanded with increased subsidy amounts, and the scope of eligible courses should be extended to cover international standards such as ISSB standards and the EU Sustainable Finance Disclosure Regulation.

Strengthening Academia‑Industry Collaboration in Research and Education

Several Hong Kong universities are globally leading in blockchain, AI, and sustainable finance research. We recommend establishing a "Green Finance Research Fund" to finance collaborative applied research between universities and financial institutions in areas such as green product innovation, climate risk model development, and ESG data standardisation. Additionally, universities should be encouraged to offer master's programmes and professional diplomas in green finance, and to provide transition training for in‑service finance practitioners.

VI. Data Infrastructure and Disclosure

Establishing a Unified ESG Data Platform

Data fragmentation is a major bottleneck constraining green finance development. We recommend that the Government take the lead in establishing the "Hong Kong Sustainable Finance Data Hub", integrating ESG data from listed companies, financial institutions, and regulators, and providing standardised data interfaces to reduce investor information costs. This platform should draw on the experience of Singapore's "Project Greenprint", employing blockchain to ensure data immutability, and achieving interoperability with Mainland and international databases.

Implementing Mandatory Climate‑Related Disclosure

From 1 January 2025, all Main Board issuers are required to disclose against climate requirements on a "comply or explain" basis. From 1 January 2026, Large Cap issuers that are constituents of the Hang Seng Composite LargeCap Index are mandated to report under the new climate requirements. HKEX will consult the market in 2027 on mandating sustainability reporting based on Hong Kong standards, with implementation expected from 1 January 2028. We recommend that the Policy Address explicitly support this roadmap and provide technical assistance for companies not yet prepared—surveys indicate that 41% of large Hang Seng Composite Index constituent companies are not yet ready for the mandatory climate disclosure requirements in 2026.

Establishing a Product Carbon Footprint Accounting and Labelling System

In line with the national product carbon footprint management system, Hong Kong should take the lead in piloting a product carbon footprint declaration system in the import‑export trade sector. We recommend that the Government work with Customs and certification bodies to develop carbon footprint accounting tools tailored to Hong Kong's trade characteristics, and encourage voluntary product carbon footprint labelling to help businesses address international trade regulations such as the EU Carbon Border Adjustment Mechanism.

VII. Cross‑Border Cooperation and Regional Connectivity

Deepening Greater Bay Area Green Finance Cooperation

The Greater Bay Area is a key engine of the nation's green transition. We recommend that the Government jointly establish the "Greater Bay Area Green Finance Cooperation Fund" with Guangdong Province and Macau, focusing on cross‑border green infrastructure, new energy, and ecological restoration projects. At the same time, mutual recognition mechanisms for green bonds and loans within the GBA should be promoted, enabling "one‑place issuance, multi‑place recognition" to simplify cross‑border financing procedures.

Strengthening Connectivity with ASEAN and Belt & Road Markets

Leveraging its international networks, Hong Kong should serve as a green finance bridge connecting China with ASEAN, the Middle East, and other Belt & Road countries. We recommend signing green finance cooperation memoranda with regulators in Singapore, Malaysia, Thailand, and other countries to promote taxonomy mutual recognition and carbon market connectivity. The 2026‑27 Budget has already proposed supporting discussions with Mainland and international multilateral financial institutions on establishing a Green Technology Project Accelerator in Hong Kong, to support the incubation and development of green technology projects in Belt & Road regions. Additionally, Hong Kong should actively participate in global initiatives such as the International Platform on Sustainable Finance, and host the annual "Belt & Road Green Finance Summit" in Hong Kong.

Attracting Leading International Virtual Asset Trading Platforms

To promote the integration of Web3 and green finance, we recommend actively attracting international compliant virtual asset trading platforms to establish operations in Hong Kong, and setting up a "Green Tokenised Asset Pilot Zone" allowing sandbox trials of tokenised green bonds, carbon credits, and renewable energy certificates. The HKMA is expected to issue the first batch of stablecoin-related licences in 2026, providing a solid regulatory foundation for this initiative.

VIII. Risk Management and Financial Stability

Integrating Climate Risk into the Macroprudential Regulatory Framework

Climate change has become a significant source of systemic financial risk. We recommend that the HKMA explicitly incorporate climate risk assessment into the "Guidelines on Macroprudential Policies", requiring banks and insurance companies to conduct regular climate stress tests and link test results to capital adequacy requirements. The HKMA has already made clear its intention to formulate bank green transition planning guidelines within the year. At the same time, a "Climate Risk Database" should be established to collect quantitative indicators of physical and transition risks, providing a scientific basis for regulatory decision‑making.

Strengthening Supervision and Penalties for Greenwashing

As green financial products proliferate, greenwashing risks are growing. We recommend that the SFC amend the Securities and Futures Ordinance to explicitly classify greenwashing as market misconduct, empowering regulators with investigation and penalty authority. The Accounting and Financial Reporting Council is currently consulting the public on the regulatory framework for related assurance; we recommend accelerating progress and clarifying the legislative timeline. At the same time, issuers of green financial products should be required to engage independent third parties for environmental benefit verification and to publicly disclose verification results periodically.

Enhancing Insurance Sector Climate Risk Transfer Mechanisms

Hong Kong has successfully issued several catastrophe bonds. We recommend further optimising the regulatory framework for insurance‑linked securities, providing tax incentives and streamlined approval processes to attract more catastrophe bond listings in Hong Kong. In addition, the establishment of a "Climate Risk Pool" should be studied, with government leadership providing reinsurance support for infrastructure in high‑risk areas.

IX. Public Engagement and Social Inclusion

Promoting Retail Green Investment Products

To enhance public awareness and participation in green finance, we recommend encouraging financial institutions to develop retail‑level green investment products such as green deposits, green money market funds, and retail green bonds. Drawing on the experience of "Project Genesis", mobile applications (such as Octopus) could be used to provide micro‑investment channels.

Establishing a Public Education Platform for Green Finance

We recommend that the Government collaborate with NGOs to establish the "Hong Kong Green Finance Knowledge Centre", offering free online courses, seminars, and informational resources. At the same time, sustainable development and green finance fundamentals should be integrated into primary and secondary school curricula.

Promoting Inclusiveness in Green Finance

It is essential to ensure that the benefits of green finance reach all social strata. We recommend establishing a "Community Green Transition Fund" to provide low‑interest loans or subsidies for grassroots families and SMEs undertaking energy‑efficiency retrofits, renewable energy installations, and similar projects. Priority should be given to green infrastructure projects in old districts and remote areas.

Conclusion

Hong Kong possesses unique advantages—an internationalised financial system, a robust legal framework, an open and free market, and close ties with Mainland China—making it an ideal location for developing green finance. The 2026 Policy Address should seize this historic opportunity, combining firm political will, forward‑looking policy design, and pragmatic implementation measures to transform Hong Kong into a globally leading green finance hub. The HKMA has officially published Phase 2A of the Taxonomy, the Cross‑Agency Steering Group has published the Transition Finance Operational Reference Guide, and the Grant Scheme has been enhanced—these developments provide a solid foundation for the next phase of Hong Kong's green finance development. This will not only contribute to achieving the national "Dual Carbon" goals but also inject new growth momentum into Hong Kong's economy, ensuring its continued competitiveness in the evolving global financial landscape.

Reforming the Hong Kong Dollar Linked Exchange Rate System

1. Background and Problem Statement

The Hong Kong dollar’s linked exchange rate system, implemented in 1983, was originally an emergency measure to calm market panic during the Sino-British negotiations. Over four decades, it unexpectedly became a cornerstone of Hong Kong’s status as an international financial centre, facilitated by globalisation and the expansion of the US dollar hegemony. However, the landscape has changed dramatically: US federal debt has exceeded US$39 trillion, with annual interest payments surpassing US$1 trillion, more than its defence budget. Central banks worldwide (including China, Japan, and Saudi Arabia) are gradually reducing their US Treasury holdings, shifting towards gold and local-currency settlements. The dollar is in a “slow-decline middle state”, neither collapsing overnight nor retaining its former allure.

As a non-sovereign currency, the HKD is pegged to the USD, effectively ceding Hong Kong’s monetary policy to the US Federal Reserve. Over the past two years, the Fed’s aggressive rate hikes to curb domestic inflation forced Hong Kong to raise mortgage rates despite weak local retail sales and stressed SMEs, directly increasing repayment burdens on homeowners. Conversely, when the Fed eased quantitative measures, hot money inflows inflated property prices, aggravating asset bubbles. This “passive monetary policy” has visibly undermined Hong Kong’s economic autonomy, and risks will accumulate as dollar credibility erodes over time.

2. The Case for Reform

The linked exchange rate system has provided stability for forty years, but that stability rests on a precondition: that the US dollar remains the sole core reserve currency and that global demand for US Treasuries stays robust. That precondition is now being eroded, geopolitical tensions have prompted China, Russia and others to cut their Treasury holdings; the petrodollar pact is loosening; and rising gold prices reflect hedging demand. If Hong Kong clings to the old regime, any major dollar volatility or credit crisis would leave the HKD with no buffer, severely impacting financial markets, property prices, and citizens’ retirement savings.

Moreover, the “new external forces” that supported Hong Kong’s recoveries from past crises (e.g., mainland capital, the Individual Visit Scheme, quantitative easing) are no longer available in the same form. While RMB internationalisation is advancing, it is not yet fully convertible, and the HKD lacks a transitional mechanism. Therefore, we believe it is unwise to wait passively for a crisis; proactive reform studies are essential.

3. Specific Policy Recommendations

(a) Establish an “Expert Committee on Monetary System Reform”

Led by the HKMA and the Financial Services and the Treasury Bureau, the committee should comprise monetary economists, international finance legal experts, and market practitioners. A interim report should be delivered within 2027, covering:

- Moderately widening the trading band (from the current 7.75–7.85) to enhance exchange rate flexibility;
- Developing a “basket-of-currencies reference mechanism”, gradually incorporating the RMB, euro, currencies of other major economies and gold into the peg anchor to reduce singular reliance on the USD; (Note: The original submission omitted the reference to “currencies of other major economies.”)
- Designing an orderly transition plan to maintain market confidence and avoid speculative attacks during the reform process.

(b) Accelerate RMB-denominated Financial Products

Encourage more Hong Kong stocks, bonds, and derivatives to be priced and settled in RMB; expand the offshore RMB pool; and discuss with mainland regulators to relax two-way RMB flow restrictions, creating conditions for a deeper HKD-RMB linkage in the future.

(c) Diversify Foreign Exchange Reserves

Gradually increase holdings of gold, other major currencies, and high-quality sovereign bonds alongside existing USD assets to reduce single-currency exposure, and regularly disclose reserve composition and risk assessments to the public.

(d) Enhance Public Communication and Investor Education

The HKMA should publish regular “Monetary System Soundness Reports” in plain language to explain systemic risks and reform progress, thereby preventing undue panic and garnering market understanding and support.

4. Conclusion

The linked exchange rate system is a product of history, not an immutable economic law. Our Association firmly believes that Hong Kong’s competitiveness lies in its adaptability, not in rigid adherence to the past. In the face of the long-cycle decline of dollar hegemony, we should pursue gradual, well-planned reforms – safeguarding financial stability while preserving monetary autonomy for future generations of Hong Kongers. We earnestly request that the Chief Executive include this subject in the long-term policy research agenda of the 2026 Policy Address.

MPF Stock Lending for Short Selling

The Mandatory Provident Fund (MPF) system is a cornerstone of retirement protection for Hong Kong's workforce. As of end-June 2026, its total assets had reached HKD 1.67 trillion, accounting for approximately 3.87% of the total market capitalisation of the main board of the Hong Kong Stock Exchange (approximately HKD 43.2 trillion as of end-June 2026). This substantial pool of funds should, in principle, be managed with steady appreciation as the primary objective. However, I am concerned that the current mechanism allows fund managers, without the full knowledge of scheme members, to lend out shares held within the funds for short-selling activities. This practice not only contravenes fiduciary duties but may also undermine market stability, it is akin to "shooting oneself in the foot," and the Government must address it squarely.

Under Section 52 of the Mandatory Provident Fund Schemes (General) Regulation and the MPFA's Securities Lending Guidelines, fund managers are indeed permitted to conduct secured securities lending, subject to strict requirements, including the collection of excess collateral of at least 105%, daily mark-to-market valuation, and a cap on the total value of securities lent at no more than 10% of the fund's assets. In practice, however, scheme members often lack sufficient transparency over such lending activities. Current legislation does not mandate trustees to disclose lending details to individual members on a one-to-one basis; members are only informed of fund performance, unaware that their own savings are being used to bolster short-selling forces. Is this fair?

Even more critical is the question of to whom the lending income belongs. The law stipulates that, after deducting expenses, lending income must be credited to the fund's assets, meaning that, in theory, it ultimately belongs to the members. But the problem lies in how the fees are calculated. Do custodians, investment managers and intermediaries charge exorbitant administrative fees, eroding the returns that members should rightfully receive? If the fee structure is not sufficiently transparent, the real beneficiaries of the lending mechanism could well be the short-sellers borrowing the shares, the fund managers, or their affiliates, rather than the members themselves. This would be tantamount to using clients' assets to serve others' interests.

A deeper concern is the systemic impact. As long-term investors, MPF funds' shareholdings should act as a "ballast" for the market. Yet now, these shares are lent out for short selling, effectively supplying "ammunition" to the short-selling side and exacerbating downward pressure on the stock market. Particularly during periods of market volatility, the lending out and subsequent selling of shares not only depresses stock prices but may also trigger a chain reaction that ultimately harms the net asset value of the MPF funds themselves. How absurd would it be to use working people's retirement savings to short-sell the very market in which they are invested?

In 2018, the Government promoted the signing of a Governance Charter by MPF trustees, emphasising the principle of "acting in the best interests of members." Yet, disclosure and income distribution relating to securities lending remain in a grey area. Our Association urge the MPFA and the relevant authorities to conduct an immediate review in the following areas: First, mandate fund managers to prominently disclose, in quarterly fund fact sheets, the names of the stocks lent, the quantities involved, and the net lending income, so that members are properly informed. Second, establish uniform caps on fee deductions to prevent any transfer of benefits. Third, assess the cumulative risks that lending activities pose to market stability, and consider setting an overall cap on the proportion of securities that can be lent. Fourth, directly abolish the power to lend shares for short selling.

The MPF is a social safety net, not a speculative instrument. Ensuring members' right to know and enabling them to genuinely benefit from the returns is the right path to safeguarding the retirement prospects of seven million people. Our Association urge the Government not to turn a blind eye, but to close the regulatory gaps without delay.

Conclusion

The financial services industry is the lifeblood of Hong Kong's economy and a cornerstone of its international standing. The recommendations set out in this submission represent the collective wisdom of the professions, informed by frontline experience, grounded in practical realities, and driven by a shared commitment to Hong Kong's long-term prosperity.

Throughout this document, we have advanced proposals across multiple fronts: shortening the settlement cycle to T+1 to enhance market efficiency and reduce systemic risk; reforming market data fee structures to lower barriers for small and medium-sized brokers and overseas firms; introducing de minimis principles in anti-money laundering supervision to sharpen regulatory precision; advancing virtual asset and digital finance frameworks to position Hong Kong at the forefront of financial innovation; expanding Islamic finance to tap into new sources of global capital; strengthening commodity futures and foreign exchange risk management capabilities to support mainland enterprises going global; deepening asset management and wealth management ecosystems through tax incentives and product innovation; and accelerating green finance development to align with national "dual carbon" goals. Each of these proposals shares a common thread: to make Hong Kong's financial markets more efficient, more accessible, more innovative, and more resilient.

We are mindful that policy reform is never without trade-offs. The industry does not seek deregulation for its own sake, nor does it underestimate the importance of financial stability and investor protection. Rather, we advocate for a regulatory approach that is proportionate, risk-based, and supportive of market development, one that recognises that a thriving financial ecosystem requires both robust safeguards and room for legitimate business to grow.

As Hong Kong formulates its first Five-Year Plan and the 2026 Policy Address, we are at a defining moment. The choices made now will shape the city's financial landscape for decades to come. We call on the Government to embrace this opportunity with ambition and determination, to build on Hong Kong's solid foundations, to address its structural challenges with courage, and to position our city not merely as a follower of global financial trends, but as a shaper of them.

The Hong Kong Securities and Futures Professionals Association stands ready to work with the Government, regulators, and all stakeholders in turning these recommendations into tangible outcomes. Together, we can ensure that Hong Kong's financial services industry continues to thrive, innovate, and serve as a beacon of excellence in the global financial system, for the benefit of all Hong Kong people and for the broader national interest.

For any inquiries regarding this letter, please feel free to contact me at (phone:/ email: ).

[Signature] [Chop]

Your Sincerely,
Mofiz Chan
Chairman
Hong Kong Securities and Futures Professionals Association

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