According to media reports on October 30, Mr. Wong Yiu-chung, Chairman of the Hong Kong Securities and Futures Commission, stated that there are currently no specific regulations in Hong Kong governing listed companies' investments in cryptocurrencies. He indicated that the SFC will monitor market developments and consider providing relevant guidance to the market.

Faced with this emerging field of crypto-assets, listed companies encounter unprecedented opportunities alongside numerous unknown risks and challenges. Should they opt for a cautious, wait-and-see approach or actively build their presence? Is it a turn to the left or to the right? This presents a strategic choice for both listed companies and regulators.

I. What is the Digital Asset Treasury Business for Listed Companies?

The digital asset treasury business for listed companies refers to a series of business activities where listed companies establish a specialized digital asset management system to incorporate various digital assets—such as cryptocurrencies, tokenized assets, and Central Bank Digital Currencies—into their corporate treasury management scope. This aims to achieve asset allocation, liquidity management, risk control, and value appreciation. This business model is not merely a product of technological advancement but also represents a profound transformation in financial management philosophy.

The digital asset treasury business exhibits three distinct characteristics:

1. Digitized Assets as Management Objects: Unlike traditional financial assets like cash and deposits, digital assets are based on Distributed Ledger Technology, featuring characteristics like programmability, divisibility, ease of transfer, and high transparency. These traits give digital assets unique advantages in liquidity, cross-border circulation, and smart contract applications.

2. Intelligent Management Means: Through technological innovations like smart contracts, algorithmic trading, and artificial intelligence, enterprises can achieve automation, precision, and real-time operation in treasury management, significantly enhancing capital operational efficiency.

3. Disruptive Management Mindset: The digital asset treasury breaks the time and space constraints of traditional treasury management, enabling real-time, 24/7 global operation, and pushing corporate financial management from a static, conservative model towards a dynamic and proactive one.

From a specific business model perspective, the digital asset treasury business encompasses multiple dimensions:

• Asset Allocation: Companies can convert part of their cash reserves into mainstream cryptocurrencies like Bitcoin or Ethereum to hedge against inflation risk and pursue higher returns.

• Liquidity Management: Using stablecoins for cross-border payments and settlement can significantly reduce fees and shorten settlement times.

• Risk Management: Hedging against digital asset price volatility risks using derivative instruments like futures and options.

• Strategic Investment: Actively participating in investments in emerging areas like Decentralized Finance, Non-Fungible Tokens, and the metaverse to explore new growth avenues and strengthen technological positioning.

II. A Grey Area or a Clear No-Go Zone?

Currently, a unified global regulatory framework for digital assets has not yet been established. Significant differences exist in the legal attitudes of various jurisdictions towards listed companies operating digital asset treasury businesses, leaving this area somewhat in a "grey zone."

Taking Hong Kong as an example, the SFC has introduced a series of regulatory documents, such as the "Guidelines for Virtual Asset Trading Platform Operators," providing legal channels for professional investors to participate in virtual asset trading. However, there are no specific regulatory rules yet targeting the treasury business operations of listed companies.

Under Hong Kong's current legal framework, there are no explicit prohibitions specifically targeting listed companies' participation in digital asset treasury business. However, related activities are subject to the constraints of the existing financial regulatory system.

• First, listed companies must comply with the Securities and Futures Ordinance. If the involved digital assets fall under the definition of "securities" (e.g., possessing equity or debt characteristics), their trading and management must meet licensing requirements; otherwise, it constitutes an offense.

• Second, the directors' duty clauses under the Companies Ordinance require management to act in the company's overall best interests and manage risks prudently. Allocating company funds to highly volatile digital assets obligates the board to demonstrate that its decisions meet the standard of diligence and care.

• Furthermore, the Hong Kong Exchange's Listing Rules explicitly require listed companies to disclose material information promptly. Establishing a digital asset treasury may trigger disclosure obligations, especially when the asset value experiences significant fluctuations.

• Notably, Hong Kong is gradually establishing a licensing regime for Virtual Asset Service Providers. Listed companies involved in related businesses may need to assess whether they need to apply for corresponding licenses.

Internationally, regulatory attitudes show a trend of diversification:

• The US Securities and Exchange Commission tends to classify most digital assets as securities, applying securities laws with strict disclosure requirements and investor protection measures for digital asset trading.

• The Monetary Authority of Singapore adopts a relatively open stance, licensing digital asset service providers under the Payment Services Act and promoting a "regulatory sandbox" to encourage innovation.

• The European Union's passed Markets in Crypto-Assets Regulation establishes a relatively comprehensive regulatory system covering asset issuance, trading, and custody, providing clear legal expectations for the market.

Overall, no jurisdiction explicitly prohibits listed companies from operating digital asset treasury businesses at present. However, there is a universal requirement to comply with existing securities laws, company laws, anti-money laundering laws, and other relevant regulations, while fulfilling higher standards of obligations in information disclosure, risk control, and corporate governance. When venturing into this area, listed companies must maintain high sensitivity to regulatory developments in relevant jurisdictions and establish corresponding compliance mechanisms.

III. Which Practices Easily Involve Violations or Crimes?

In practice, if listed companies fail to establish a robust compliance system, they can easily cross legal red lines.

• Information Disclosure Violations: If listed companies fail to disclose digital asset holdings, trading activities, and related risks as required, it may constitute misrepresentation or material omission. For instance, a US-listed company was investigated and heavily fined by the SEC for not promptly disclosing its substantial Bitcoin investment. The high volatility of digital assets means their value can significantly impact a company's financial position, making timely, accurate, and complete disclosure crucial.

• Insider Trading: The 24/7 nature of digital asset markets and the rapid spread of information pose new challenges for defining and preventing insider information. If insiders of a listed company use non-public digital asset-related information to trade for profit, it constitutes insider trading, carrying severe legal consequences.

• Market Manipulation: Practices affecting digital asset prices through fake trades, wash trading, or "pump and dump" schemes are more concealed in the anonymous and cross-border-friendly digital asset market but are becoming a key enforcement focus for regulators worldwide.

• Money Laundering and Terrorist Financing: The anonymity and cross-border liquidity of digital assets make them susceptible to illicit fund transfers. If listed companies fail to fulfill anti-money laundering obligations like Customer Due Diligence, record keeping, and suspicious transaction reporting, they may face severe penalties. A Hong Kong-listed company was previously investigated for cross-border fund transfers via digital assets, highlighting the importance of AML compliance.

• Tax Violations: The rules for tax treatment of digital assets remain unclear, easily leading to disputes. If listed companies fail to accurately calculate and pay taxes such as capital gains tax arising from digital asset transactions, they may face tax audits and penalty risks. Tax authorities worldwide are gradually strengthening oversight of digital asset transactions, requiring companies to closely monitor the evolution of relevant policies.

Additionally, technical security risks cannot be ignored. Events like private key loss, hacker attacks, or smart contract vulnerabilities can lead to permanent asset loss, while the attribution of related responsibilities still faces legal gaps. Listed companies need to establish strict technical security systems and contingency plans to mitigate such risks.

IV. Where Lies the Business's Appeal?

Despite the numerous risks, the digital asset treasury business holds strategic value that listed companies cannot ignore.

• Financial Management Innovation: Digital assets enable near real-time clearing and settlement, significantly improving fund utilization efficiency. Through the programmable features of smart contracts, companies can achieve precise cash flow management, automated dividend payments, and condition-triggered financing. Using stablecoins for cross-border payments can significantly reduce fees, shorten settlement times, and optimize global fund allocation.

• Diversified Asset Allocation: Against the backdrop of low traditional asset yields and increasing inflationary pressures, digital assets offer listed companies new investment options, helping to diversify investment risks and enhance overall returns. Companies like MicroStrategy have achieved substantial financial returns by allocating to Bitcoin, attracting emulation from numerous enterprises.

• Deepening Integration of Industry and Finance: For technology-focused listed companies, the digital asset treasury business can create synergies with their core operations, promoting the application of blockchain technology in scenarios like supply chain finance, digital identity, and IoT data transactions, thereby facilitating the digital upgrade of the industrial ecosystem.

• Enhanced Brand Value: Proactively embracing digital assets helps shape an innovative and forward-looking corporate image, attracting younger investors and top talent, and potentially boosting market valuation. In the digital economy era, a company's technological sensitivity and innovation capability have become important competitiveness indicators.

V. Governance Dilemmas Under the Clash of Old and New Paradigms

The participation of listed companies in the digital asset treasury business presents unprecedented challenges for regulators.

• Regulatory Arbitrage Risk: The cross-border nature of digital assets may allow listed companies to circumvent stricter regulations through structural design, triggering regulatory competition or even a "race to the bottom," threatening global financial stability.

• Technological Understanding Gap: Regulators' understanding of new technologies like blockchain, smart contracts, and zero-knowledge proofs lags behind market innovation, making it difficult to formulate targeted and operable regulatory rules, leading to regulatory gaps or over-regulation.

• Increased Risk Contagion: The high volatility and interconnectedness of digital asset markets could transmit risks to the broader capital market through the balance sheets of listed companies, amplifying systemic risk. Especially during extreme market conditions, digital asset treasuries could become nodes for risk transmission.

• Investor Protection Challenges: Ordinary investors struggle to understand the complex risks, valuation logic, and technical principles of digital assets, exacerbating information asymmetry. If risk events occur, investors could face significant losses, impacting market confidence.

• Regulatory Jurisdiction Conflicts: Innovative models like DeFi challenge traditional regulatory jurisdictions, and cross-border regulatory cooperation mechanisms are still underdeveloped, leading to enforcement difficulties and regulatory loopholes.

VI. Strategic Choices for Building Hong Kong's International Digital Finance Hub

Facing the development trend of the digital asset treasury business, Hong Kong, as an international financial center, should seize the historical opportunity. While adhering to risk bottom lines, it should lead industry development through the following measures:

• Align with Digital Asset Policy Statement Stance: The Hong Kong government should, referencing its previous series of policy statements on virtual assets, study how to reflect the principle of "same business, same risks, same rules" in regulating the digital asset treasury business, aiming to prevent risks while avoiding stifling innovation through over-regulation.

• Promote Regulatory Innovation and Strengthen Investor Protection Mechanisms: Actively develop RegTech, utilizing blockchain, big data, AI, and other technologies to enhance regulatory efficiency, achieving real-time monitoring, risk warning, and intelligent enforcement. The SFC could consider establishing a digital asset regulatory sandbox to provide testing space for innovative businesses and support companies in exploring new models within a controlled risk environment. Introduce a qualified investor regime, setting appropriateness requirements for retail investor participation in digital asset investments. Establish a digital asset dispute resolution mechanism, setting up dedicated arbitration and mediation platforms to protect investors' legitimate rights and interests.

• Learn from International Experience, Refine the Regulatory Framework: Drawing on international best practices like Singapore's licensing management system and the EU's MiCA framework, build a regulatory system covering the entire chain of digital asset issuance, trading, and custody. Specifically, clarify detailed requirements for listed companies regarding information disclosure, asset valuation, risk control, audit assurance, etc., for digital asset treasury operations, providing clear operational guidance.

• Leverage the "One Country, Two Systems" Advantage: While safeguarding financial security, establish regulatory information sharing and law enforcement collaboration mechanisms with the Mainland and other jurisdictions to jointly address cross-border regulatory challenges. Deepen cooperation particularly in anti-money laundering, counter-terrorist financing, and combating market manipulation.

The digital asset treasury business is an inevitable product of the digital economy era. Listed companies cannot avoid its consideration, and regulators cannot afford to ignore it. For Hong Kong, properly addressing the regulatory issues surrounding listed companies' digital asset treasury business requires, on one hand, maintaining financial market stability, and on the other, focusing on the strategy of consolidating and enhancing its status as an international financial center. We stand at a historical watershed. Turning left, adhering strictly to old ways, might mean missing development opportunities. Turning right, charging ahead blindly, could trigger significant risks. Only by seeking a balance between innovation and regulation, and maintaining clarity between opportunity and risk, can we navigate steadily and go far in this digital financial transformation.