How Hong Kong’s New Virtual Asset Licence Compares With Abu Dhabi

Host: Hong Kong and Abu Dhabi are two of the most active financial centres for digital assets, and the links between them are growing. I am very pleased to have our next guest join us today, Hank Terrebrood of Trivium. Trivium is a global fund management platform in Hong Kong, and Hank is actively working on this new licence for virtual asset managers. Welcome to the show.

Hank Terrebrood: Thanks, Lucy. Thank you for having me.

Host: Tell us a little more about Trivium.

Hank Terrebrood: We consider ourselves an independent fund manager, more so than a platform. What differentiates us from your traditional idea of a platform is that we are an active partner in every fund we work with. When you come in, we help you go through your fund documentation and set risk limits. You use our systems if you have a liquid strategy, and if you are illiquid I sit with you as part of your investment committee and make sure you stick to your knitting, that you do what you told your investors you were going to do. So we are more closely integrated in everything to do with operations, execution and investor communication. We approve every letter that goes out. We are an active part of every partner’s life.

Host: Hong Kong is bringing out a licence for managers of virtual assets. Can you tell us more about it, what it encompasses and why?

Hank Terrebrood: We were able to operate in Hong Kong with virtual assets as a portion of our portfolios, as long as there was an under 10% de minimis threshold. The SFC basically let us run with existing rules, same business, same rules, same risk, and they have decided to take that one step further. I think part of this has to do with the people in the service delivery of virtual assets: fund administrators, custodians, brokers and of course the trading platforms. As part of this change, the 10% de minimis rule goes away. If you have any exposure to virtual assets, your fund will get this virtual asset management uplift.

Host: So they are really tightening up. How does Hong Kong compare to Abu Dhabi, or the US and Singapore, as a digital asset hub?

Hank Terrebrood: Despite our cheerleading stance to the rest of the world, you have to remember that Hong Kong is fairly nascent in this space. We do have a few rules that could trip some people up. For instance, if you are trading assets here that are asset backed, like Tether, in the rest of the world that would probably be considered either a security or a non virtual asset. In Hong Kong, if Tether were licensed with the SFC, it would also be a regular security because it is backed by real assets. But because not every one of those coins or tokens has registered with Hong Kong, there is a grey area that can leave you thinking you do not have to worry about it, when your exposure is something that should be a security. The SFC wants all of those asset backed tokens to register in order to be recognised as a security.

Host: Interesting. So stablecoins may be an area for greater clarification. Hong Kong is also launching its own Hong Kong dollar backed stablecoin. How connected are Hong Kong and Abu Dhabi today in terms of capital, regulation and fund managers moving between the two?

Hank Terrebrood: There has been some strengthening over the past several years, with a series of three or four different agreements signed. One of the earlier ones was a sovereign fixed income bridge, which gave institutional investors and sovereign wealth in Abu Dhabi access to Hong Kong’s money market units, so you could participate directly in Hong Kong capital markets. There have been exchange level alliances that began with data exchange. And we have cross listed ETFs now. You can be licensed for a retail fund in Hong Kong and market it to retail investors in Abu Dhabi, and vice versa. It grew from a vague idea to something more and more integrated, and I think the next step is going to be in the virtual asset space.

Host: From the Abu Dhabi standpoint, it is building connectivity and bridges with many financial centres, and Hong Kong is a key partner. Looking forward to the next two years, how does the digital asset industry look? Is it different in Hong Kong versus Abu Dhabi?

Hank Terrebrood: As these agreements grow, regulatory regimes have to grow and change along with them. I think we are going to see more adoption of similar compliance standards, and it is going to leave the rest of Asia behind. Without pointing fingers or naming names, the rest of Asia is not moving in the right direction. There are regulators here who simply refuse to treat anything to do with cryptocurrency or tokens as capital market products, or refuse to license funds and support fund managers in managing them. With Hong Kong’s same business, same risk, same rules approach, I imagine that is going to be a big space going forward. I think the FCA in the UK is taking this approach too, and you are going to see this synergy between Hong Kong and the Middle East definitely grow.

Host: Centres can accelerate or put their foot on the brake at different times. It seems Hong Kong is putting its foot on the brake when it comes to pure cryptocurrency at this point, whereas Abu Dhabi is moving ahead very fast and making sure it is ready for the new industry. Hank, thank you for bringing insights from Hong Kong and telling us about Trivium.

Hank Terrebrood: Thank you for having me. Have a good day.