As technologies drive new business and service models, regulatory leaders are faced with a key challenge: how to best protect citizens and ensure fair markets, while allowing these new technologies and businesses to flourish? The advancement of some technologies, particularly in the commercial sector, has gone beyond the scope of the existing regulatory framework. For this reason, in LegCo, I always advocate revamping laws to keep up with them, hence maintaining the confidence of the public and presenting clarity to innovators and investors.
In The Law Society of Hong Kong’s 5th Belt and Road Conference, which was held on Nov 10, I raised several legislative paths to create better laws for four vital elements in the upcoming Web 3.0 economy. Below are the main points.
First, intellectual property (IP) such as works of digital art, music and software code have been protected by Copyright Ordinance since 1997. Several attempts at strengthening copyright protection in the digital environment failed due to political chaos and irrational disputes within society. As a result, Hong Kong’s copyright regime is unfortunately over a decade behind international developments. The strategy to develop Hong Kong into a regional IP trading center under the national 14th Five-Year Plan (2021-25) has stalled.
The target is striking a balance between the protection of citizens’ rights, offering transparency for investors and enterprises, and facilitating growth in the tech industry
Since improving the electoral system last year, enabling the executive and the legislature to resume rational interaction, a bills committee has been formed under the new LegCo to review the Copyright (Amendment) Bill 2022. It strikes a proper balance between the interests of copyright owners and users, and serves the best interests of Hong Kong. Such progress demonstrates how legislators keep pace with the times.
Second, Hong Kong does not have specific legal requirements on the cybersecurity of critical information infrastructures (CII). Among them, Section 161, “Access to computer with criminal or dishonest intent”, of the Crimes Ordinance (Cap 200) was enacted in 1993. So it is high time to revive the long-behind and incomplete cybersecurity legislative revamping exercise.
The government submitted a paper in April to LegCo about plans to introduce a cybersecurity law to define the cybersecurity obligations of CII operators and promote the establishment of a management system for the safe operation of their information systems and networks. I expect a public consultation to be launched by early 2023.
In addition, The Law Reform Commission (HKLRC) has recently finished public consultation on legislation addressing five types of cyber-dependent crimes. HKLRC and I jointly organized a conference for industry stakeholders. Through mutual communication, we aimed at tackling the protection of netizens’ rights and the establishment of new industry working practices.
Third, how should we handle the data generated by all these enterprises? From a regulatory perspective, the key compliance remains data protection and privacy, which is now regulated by The Personal Data (Privacy) Ordinance. However, the ordinance is less stringent with respect to regulatory guidance and enforcement, when compared with other major jurisdictions such as the EU.
Therefore, in LegCo, I raised a concern about reforming the current regulatory systems. One possibility would be a data security law which regulates the collection and processing of data based on its potential impact on privacy invasion and national security. On top of this fundamental law, the amended Copyright Bill and the proposed new cybersecurity law will address specific data application challenges such as the content posted on metaverse platforms and keeping our CII out of the hands of hostile actors.
Besides data, virtual assets (VA) are the fourth vital element. As a medium of transaction and value storage, cryptocurrencies and non-fungible tokens (NFTs) have flourished significantly and become new asset classes. Many countries note with concern the growing impact of VAs on the real economy. Questions remain due to its evolving, interconnected nature: How to define its property rights? How to regulate its issuing, trading and settlement properly? Therefore, it is welcome news that the government works on regulatory clarity and provisions for its right development direction.
In June, the HKSAR government gazetted the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022, which introduced a new licensing regime for VA exchanges. Moreover, the Securities and Futures Commission published a circular on the possibility of having VA futures exchange-traded funds (ETFs) in Hong Kong. Recently, the government issued its “Policy Declaration on the Development of Virtual Assets in Hong Kong” during FintechWeek 2022. The financial secretary called for a greater emphasis on openness and proper supervision when dealing with VAs. Measures include a new licensing regime for VA service providers, tokenization of green bonds and a public consultation on retail access to VA products. To further address the potential risk of online crowdfunding activities, the SAR government plans to consult the public in late 2022.
There are innumerable examples of how new technology can raise new legal issues — and how our current regulatory regime has not yet adapted to this new reality. Take NFTs as an example. Metaverse experts expect that they can be developed as proof of ownership of a physical asset; proof of ownership after tokenization of a physical asset; proof of digital assets created by humans; proof of digital assets created by AI; or proof of membership or subscription of service.
In the second instance above, how can we prove someone has the right to issue NFTs when he or she owns only part of the original work? In the fourth instance above, should we grant copyright to AI which in turn is created or trained by humans? A recent court case in Singapore judged, for the first time, that NFTs are property, and that a “smart contract”, which is a transaction protocol built with blockchain technology, should be treated as a legally binding contract.
All this reveals that technology and innovation are limitless. One reality is that, usually, lawmakers cannot predict new technologies before they emerge. Thus, the law is forced to play catch up after the fact. The government is challenged with creating regulations, enforcing them, and communicating them to the public at a previously undreamed-of speed. The target is striking a balance between the protection of citizens’ rights, offering transparency for investors and enterprises, and facilitating growth in the tech industry. Such open, mature and forward-looking policy direction will cultivate an ecosystem of Web 3.0 businesses and reinforce Hong Kong’s status as an international technology hub.
The author is a Legislative Council member representing the Technology and Innovation Functional Constituency, the non-official member of the Digital Economy Development Committee, a tech entrepreneur, and a veteran tech investor.
The views do not necessarily reflect those of China Daily.