The HKMA said that as Project e-HKD expands its coverage from e-HKD only to a more comprehensive exploration of the digital money ecosystem, the project has been renamed as Project e-HKD+, "reflecting the evolving fintech landscape and the HKMA’s commitment to unlocking the full potential of digital money."

Under Phase 2, 11 groups of firms from various sectors have been selected to explore innovative use cases for e-HKD and tokenised deposits across three main themes: settlement of tokenised assets; programmability; and offline payments. The selected firms will also examine the commercial feasibility, within a real-world setting, of new forms of digital money that may potentially be accessible to individuals and corporates.

The Sandbox is designed to enable interbank settlement using experimental tokenised money, focusing on transactions involving tokenised assets.

The initial round will involve both traditional financial assets and real-world assets, covering four main themes: fixed income and investment funds, liquidity management, green and sustainable finance, and trade and supply chain finance. The HKMA will continue to engage with the industry to gauge interest in tokenisation, develop new themes and identify further use cases for tokenisation.

See also the Opening remarks by HKMA Chief Executive Eddie Yue given at the launch ceremony for Project Ensemble Sandbox.

These included: (1) the HKMA and the Bank of Thailand will launch a system that will allow visitors to make instant payments to merchants in both places. (2) HKMA will explore further use cases for distributed ledger technology in capital markets, including the issuance of a second tokenized government green bond; and (3) HKMA will commence the next phase of its e-HKD pilot program in 2024.

According to the press release, Project Sela "demonstrated the technical feasibility of a retail central bank digital currency architecture that can promote competition and innovation in digital payments by allowing non-bank payment intermediaries to connect directly to the CBDC ledger of the central bank. Leveraging distributed ledger technology (DLT), a proof-of-concept prototype was developed to showcase how the technical implementation of the proposed architecture can incorporate strict cybersecurity, legal and policy requirements."

The SFC will implement "a number of measures" to protect these investors including "ensuring suitability in the onboarding process, good governance, enhanced token due diligence, admission criteria and disclosures."

The SFC set out the details in its announcement on the conclusions of its consultation on the proposed regulation of virtual asset trading platform operators licensed by the authority.

The majority of consultation respondents agreed to the SFC's proposal to allow licensed trading platform operators to serve retail investors. However, clarification was sought on the technical and implementation details. Key comments related to retail access to licensed virtual asset trading platforms, the criteria for token admission, compensation arrangements for the risks associated with custody of client assets, trading in virtual asset derivatives, implementation details and the transitional arrangements. 

The proposed regulatory requirements were revised by the SFC and will become effective on 1 June 2023..

The requirements cover, among others, safe custody of assets, segregation of client assets, avoidance of conflicts of interest and cybersecurity standards and requirements expected of licensed trading platforms. The SFC will provide additional guidance on the new regulatory requirements, other implementation details including licence application procedures, as well as more information about the transitional arrangements.

SFC Chief Executive Officer Julia Leung said: “Providing clear regulatory expectations is the key to fostering responsible development. Hong Kong’s comprehensive virtual assets regulatory framework follows the principle of ‘same business, same risks, same rules’ and aims to provide robust investor protection and manage key risks. This will enable the industry to develop sustainably and support innovation.”

The pilot, which was conducted from 15 August to 23 September 2022, covered three transaction types: issuance and redemption of CBDC between commercial banks and central banks; cross-border payment in local CBDC between commercial banks; and cross-border exchange of local CBDC against foreign currency CBDC between commercial banks. The 20 banks in the four jurisdictions used the mBridge platform to conduct 164 payment and foreign exchange transactions totalling over $22 million over six weeks, settled directly on the platform.

Called Project Sela, the research will study the data security implications of a two-tier retail CBDC architecture where the intermediaries will have no financial exposure, and pioneer methods of making it more resilient to cyber-attacks. The Project is expected to be completed by the end of 2022.