Author：Cold Wind Meta

Author: Zhang Feng

On December 3, 2025, Ms. Leung Fung-yee, Chief Executive of the Hong Kong Securities and Futures Commission, delivered a keynote speech at the 4th ASEAN Plus Three Economic Cooperation and Financial Stability Forum. With the theme of “Reconstructing Finance - Regulatory Progress Amidst Changes in the Times,” she systematically elaborated on the profound changes currently facing the financial market, the accompanying risks, and the response strategies that regulatory agencies and market participants should adopt.

Against the backdrop of a global digital revolution, a reshaping of geopolitical landscapes, and the empowerment of finance by technology, her speech not only set the tone for financial regulation in Hong Kong and even Asia, but also provided a clear roadmap for the standardized development of emerging fields such as digital assets.

Let's analyze the implications of the "transformation" pointed out by Liang Fengyi, summarize the hidden risks, summarize the paths she proposed for change, and then deduce the development trend of the digital asset industry, and explore how the industry can achieve innovation and progress amidst risks.

I. A Changing Era: Four Forces Reshaping the Financial Ecosystem

In her speech, Leung Fung-yee clearly pointed out that the financial market is undergoing an "unprecedented baptism," a transformation primarily driven by four intertwined forces:

First, the private equity market is growing rapidly.Since the global financial crisis, the implementation of Basel III has strengthened the regulation of bank capital and liquidity, restricting the credit supply of the traditional banking system. Private lending has thus filled the financing gap, becoming an important channel to support innovation and growth in the real economy. The global private asset management scale has nearly tripled in ten years, reaching $14 trillion, and the risks have also spread from the banking system to non-bank financial institutions and asset holders.

Second, the comprehensive penetration of technology into financial services.Technologies such as artificial intelligence, machine learning, generative AI, and quantum computing are profoundly changing the way financial businesses operate. They improve efficiency, reduce costs, and drive innovation, but they also bring new risks such as model bias, "illusionary" output, data security, and cybersecurity.

Third, the rise of distributed ledger technology (DLT) and digital assets.Blockchain technology enables instant clearing and settlement, driving the transition from T+2 to T+1 and even real-time settlement. Digital assets, especially cryptocurrencies and tokenized products popular among the younger generation, are changing investment behavior and market structure.

Fourth, the restructuring of the geoeconomic landscape and the connection between financial markets.Global supply chains are shifting from integration to regionalization, with intra-regional trade in the Asia-Pacific region now accounting for nearly 60%. ASEAN has emerged as a vibrant new economic hub, attracting substantial foreign investment. Financial market bridges are being rapidly restructured, and Hong Kong, as an international financial hub, is actively reconnecting with regional treasury centers, supply chain finance, and capital markets.

The combined effect of these four forces has led to an unprecedented increase in the complexity, interconnectedness, and uncertainty of the financial system, blurring traditional boundaries (such as public and private offerings, fiat currency and stablecoins), and posing a challenge of "seeking progress amidst risks" for both regulators and the market.

II. Hidden Risks: Complexity and Emerging Threats

Amidst this changing landscape, Leung Fung-yee astutely pointed out multiple risks, stemming both from the evolution of traditional sectors and the challenges posed by emerging technologies:

In the private equity marketAsset quality is polarized, with some private equity firms exhibiting complex credit structures, low liquidity, insufficient transparency, and difficulties in valuation, making them prone to fraud. Cases such as First Brands and Tricolor in the US have served as warnings. Meanwhile, increased retail participation is further spreading risks to the general public. The increasingly close ties between private equity firms and institutions such as banks and insurance companies are creating potential contagion pathways for systemic risk.

In terms of technology applicationWhile artificial intelligence improves efficiency, the "black box" nature of its models makes results difficult to audit, verify, and interpret, potentially leading to erroneous trading signals, inappropriate investment advice, and distorted pricing. The "illusion" risks of generative AI, the operational resilience vulnerabilities arising from supplier concentration, and the potential for quantum computing to break existing encryption systems all pose threats to financial stability.

In the field of digital assets and DLTYoung investors, seeking high returns, fast-paced experiences, and social interaction, often overlook the risks. Unregulated stablecoins could trigger liquidity crises during large-scale redemptions. The digital asset market itself is highly volatile, plagued by frequent fraud, manipulation, and cybersecurity incidents, highlighting the urgent need for stronger investor protection.

Against the backdrop of geopolitical restructuringGlobal liquidity fragmentation, differences in regulatory standards, and uncertainties arising from supply chain restructuring all pose challenges to capital market integration and financial stability.

III. Regulatory Transformation: A Path to Balancing Innovation and Prudence

Faced with changes and risks, Liang Fengyi proposed a series of solutions for seeking change through regulatory and market synergy, the core of which lies in "adapting to change, having a long-term vision, and deepening cooperation":

Strengthen the adaptability and forward-looking nature of the regulatory framework.The Hong Kong Securities and Futures Commission (SFC) is conducting a comprehensive review of its regulatory framework, striving to strike a balance between "innovation and sustainable growth." For the private equity market, it has strengthened reporting requirements for over-the-counter derivatives data and promoted standardized disclosure to enhance transparency and manage counterparty risk.

Build a technology risk governance system.Licensed institutions are required to establish robust AI governance and risk management frameworks, and to introduce a "human-in-the-loop" mechanism for high-risk generative AI applications. Simultaneously, efforts are being made to promote the development of cybersecurity frameworks and quantum-safe infrastructure to address emerging technological threats.

Leading innovation in digital asset regulation.Hong Kong is committed to building a safe and reliable digital asset platform and establishing a comprehensive regulatory framework. Regulations have already been established for central exchanges, advisors, and asset management, and the final regulatory pieces for trading and custody services are being finalized. Stablecoin regulations have come into effect, ensuring the proper management and auditing of reserve assets.

Promote regional cooperation and ecological interconnectivity.It emphasizes leveraging regional institutions such as AMRO to strengthen cross-border regulatory communication and reduce disagreements. In the digital asset sector, it promotes interbank blockchain interoperability (such as the Ensemble project) to achieve large-scale and instant settlement of tokenized products. It supports the cross-listing of financial products between Hong Kong and mainland China, the Middle East, and other markets (such as Saudi stock ETFs), rebuilding regional financial bridges.

We advocate for public-private partnerships and market self-regulation.The industry is encouraged to identify key risks and disclosure needs on its own, while regulators provide appropriate and flexible guidelines to avoid stifling innovation with a "one-size-fits-all" approach.

IV. Major Trends in the Digital Asset Industry: Compliance, Institutionalization, and Ecosystem Development

Based on Liang Fengyi's arguments, it can be inferred that the future development of the digital asset industry will exhibit the following characteristics:

Regulatory compliance has become the mainstream.Global regulators are accelerating the development of legal frameworks for digital assets. Hong Kong's experience demonstrates that regulation is not about stifling innovation, but rather about providing a safe and trustworthy environment for its development. Compliance will become a prerequisite for business entry and long-term survival.

Product tokenization is moving from pilot programs to large-scale implementation.Tokenized green bonds, money market funds, and gold products have already achieved initial success in Hong Kong, with a scale of approximately US$3 billion. In the future, more traditional financial assets (such as bonds, stocks, and real estate) will achieve full lifecycle management on the blockchain, enabling instant settlement and confirmation of ownership.

Stablecoins are entering a period of standardized development.With the enactment of Hong Kong's Stablecoin Law, transparency and regular audits of reserve assets have become standard practice. Stablecoins will play a greater role in areas such as payments, settlements, and DeFi, but liquidity risks must be controlled within the regulatory framework.

Interoperability has become key to ecological expansion.A single blockchain is insufficient to support large-scale financial applications; therefore, cross-chain, cross-institutional, and cross-border interoperability protocols and shared infrastructure (such as a shared payment layer) will become the focus of development. The Hong Kong-based Ensemble project is a forward-looking attempt in this regard.

Institutional participation continues to increase.Traditional financial institutions such as banks, asset management companies, and insurance companies are gradually integrating into the digital asset ecosystem, providing services such as custody, trading, and investment products, and driving the market structure to transform from retail investor-dominated to institutionalized and professionalized.

The Asian market leads innovation.With its young population, high level of digitalization, and flexible regulatory environment, ASEAN and the China-Japan-Korea region will become important testing grounds for the application and innovation of digital assets. Hong Kong, with its institutional advantages and bridging role, is poised to become a regional digital asset hub.

V. How can the digital asset industry innovate and make progress?

Under Liang Fengyi's principle of "seeking progress amidst risks," the digital asset industry must find a dynamic balance between innovation and risk management to achieve sustainable development.

We must give equal importance to technological innovation and risk management.The industry should actively explore cutting-edge technologies such as zero-knowledge proofs, privacy computing, and cross-chain technology to improve efficiency and security. At the same time, it should establish an internal risk control system to rigorously oversee smart contract auditing, cybersecurity protection, and liquidity management to prevent systemic risks caused by technical vulnerabilities.

Embrace regulation proactively and participate in rule-making.Enterprises should view regulators as partners, not adversaries, and actively participate in regulatory sandboxes, pilot projects, and policy consultations to provide a market perspective for policy design. Through compliance practices, they can build industry credibility and attract long-term capital.

Deepen the understanding of real-world application scenarios.Digital assets should not be limited to speculative trading, but should be integrated into the real economy, including supply chain finance, trade finance, green finance, and intellectual property securitization. Tokenization can improve asset liquidity, reduce transaction costs, enhance transparency, and create real value.

Strengthen investor education and protection.To address the issue of insufficient risk awareness among retail investors, the industry should improve public understanding through clear information disclosure, risk warnings, and investor suitability management. Simultaneously, it should explore investor protection mechanisms such as insurance and compensation funds to enhance market resilience.

Build an open and collaborative ecosystem.Businesses, financial institutions, technology companies, and regulatory agencies should strengthen cooperation to promote the unification of technical standards, data protocols, and compliance interfaces, thereby reducing interconnection costs. Hong Kong can play a super-connector role, facilitating connections between the mainland and international markets.

Cultivate a cross-disciplinary talent pool.Digital assets integrate multiple fields such as finance, law, and computer science, creating an urgent need for professionals with both technical and compliance expertise. The industry should collaborate with universities and training institutions to build a talent pool to support long-term innovation.

Liang Fengyi's speech outlined a roadmap for "seeking progress amidst risks" for the financial market in a changing landscape: it is necessary to be keenly aware of the opportunities brought about by technological and market innovation, while also being soberly aware of the risks involved; it is necessary to maintain the flexibility and foresight of regulation, while also adhering to the bottom line of investor protection and financial stability.For the digital asset industry, this means that, on the one hand, compliance, institutionalization, and ecosystem development will become an irreversible trend; on the other hand, the industry can only achieve steady and long-term development in the wave of change through technological innovation, in-depth cultivation of scenarios, ecosystem cooperation, and risk management.