Hong Kong Introduces Regulatory Sandbox for Crypto Asset Exchanges: A Comparison of Domestic Regulatory Innovation Differences

Recently, the Hong Kong Securities and Futures Commission announced that Crypto Assets exchanges will be included in the "Regulatory Sandbox", a move that has once again sparked industry interest in the concept of "Regulatory Sandbox". The "Regulatory Sandbox" was originally proposed by the UK government in March 2015, aiming to provide a relatively relaxed regulatory environment for fintech companies to test their innovative products, services, and business models, while also allowing regulators to explore suitable regulatory approaches for financial innovation.

This concept has been adopted by many countries around the world, including the United States, Singapore, Australia, and others. China has also begun to explore the "Regulatory Sandbox" model against the backdrop of rapid development in financial technology. In addition to Hong Kong, cities such as Ganzhou in Jiangxi, Taizhou in Shandong, Hangzhou in Zhejiang, and Shenzhen in Guangzhou have also made relevant attempts.

In July 2017, the Blockchain Financial Industry Regulatory Sandbox Park in Ganzhou, Jiangxi Province was launched, marking the first Regulatory Sandbox for blockchain led by government departments in mainland China. The park encourages the settlement of innovative enterprises in blockchain technology and financial applications, providing policy support. Currently, the park has built a 25,000 square meter industrial park and has introduced a series of related policies, such as promoting blockchain filing. Although the park has been in operation for more than a year, its specific achievements in blockchain industry innovation and regulatory innovation are yet to be observed.

Hong Kong's "Regulatory Sandbox" is closer to international standards. The Hong Kong Securities and Futures Commission plans to explore the operation of crypto asset exchanges through the "Sandbox" and determine whether they should be regulated. This process will be divided into two phases, with the second phase requiring at least 12 months. The Hong Kong Securities and Futures Commission stated that it hopes regulated exchanges will receive special regulatory exemptions during this period for exploratory operations.

It is worth noting that there are essential differences between the "Regulatory Sandbox" in Ganzhou and Hong Kong. The model in Hong Kong is promoted by the highest regulatory authority, with clear objectives for policy experimentation, and if successful, it may be promoted more widely. In contrast, the model in Ganzhou resembles a local government-led incubation park, which is part of a local differentiated development strategy, and the likelihood of its policies being promoted nationwide is relatively low.

In addition, there are also some attempts in places like Shenzhen and Qingdao that are labeled as "Regulatory Sandbox", but these projects are mostly led by non-profit organizations and lack direct involvement from the government or regulatory agencies. Strictly speaking, these do not meet the definition of a "Regulatory Sandbox" and are more like ordinary industrial parks.

The real "Regulatory Sandbox" should connect fintech innovation companies and government regulatory departments, allowing both parties to jointly explore new policies suitable for fintech innovation within a specific scope. The physical space is not the core; the key lies in the "regulation" itself. Currently, many cities in China carry out park incubation under the name of "Regulatory Sandbox". Although certain policy support is provided, the substantial significance of promoting the coordinated development of regulatory mechanisms and fintech innovation is limited.

In the future, how to establish a truly effective "Regulatory Sandbox" mechanism to balance innovation and risk will be an important issue facing the development of financial technology in China.