The Hong Kong Exchange (HKEX) published a report recently that focused on blockchains and artificial intelligence (AI) applications in the securities industry.
The report, published on October 18 and written by the Chief China Economist’s Office and Innovation Lab at HKEX, stated that FinTech firms utilising cryptocurrency should be subjected “to the governance by the Securities Law.” According to recent reports, HKEX might be thinking about a change in business strategy, and the blockchain sector might just be the answer.
HKEX is the world’s sixth-largest stock exchange and Asia’s third-largest operator by market cap. The research paper released by the exchange detailed the need for finance and crypto to be bound by similar legal frameworks. HKEX noted that there is a need to apply the existing laws of finance to companies in the FinTech industry due to their resemblance to traditional services. The report also stated that regulators need to keep up with the pace of financial technologies. What the report suggests is that digital assets could be monitored by an existing security regulatory framework, while the blockchain could be integrated into the investment, trading, clearing, and settlement industry.
The HKEX research paper also proposes that Hong Kong regulators integrate AI and Big Data into its system to establish an effective regulatory technology (RegTech) system, which could be enhanced to include Know Your Customer and identification controls. A functional RegTech system would enable crypto and blockchain startups approach auditing and legalities faster. They would be able to put their business documents online to gain approvals rapidly.
The report also noted that blockchain has different regulations in different jurisdiction and that the “principle of consistency requires that […] the issuance of digital currencies and digital funds must be governed under the existing securities regulatory framework.” The report additionally stated that pubic fundraising should be subjected to the Securities Law.
There were also concerns on the possibility of a large-scale deployment of the blockchain posing a risk. The authors of the report expressed, “As each node has a ledger of the whole chain, any successful hacking will not only expose data of the hacked node to theft but also expose all data in the full ledger to potential replication.”
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