Hong Kong eyes stablecoin regulatory regime by 2024

Whereas the Western world debates how one can regulate stablecoins, Hong Kong is forging forward with a regulatory framework for cryptocurrencies pegged to conventional monetary property.

The Hong Kong Financial Authority (HKMA) is within the strategy of in search of feedback from the general public concerning stablecoins and goals to introduce a regulatory framework by the tip of 2024, mentioned the town’s Undersecretary for Monetary Providers and the Treasury, Joseph Chan Ho-lim, in accordance with native media.

Whereas the U.S. authorities is toughening its stance on the crypto business within the wake of TerraUSD (UST)’s collapse and FTX’s implosion, the crypto neighborhood in China is heralding Hong Kong’s rising coverage clarification concerning the nascent asset class.

On June 1, Hong Kong formally set in movement a brand new crypto regulatory regime through which exchanges should get hold of licenses to be able to function within the metropolis. Beneath the brand new framework, licensed exchanges will be capable of let retail buyers commerce sure main cryptocurrencies, which have been imagined to be Ether and Bitcoin.

The coverage improvement is a serious milestone for the area that has ventured in the wrong way as mainland China, the place crypto buying and selling is against the law. The welcoming stance o Hong Kong, some have argued, is a results of the historic function the town has performed as a sandbox for the remainder of China.

Hong Kong’s stablecoin regulation has been a very long time coming. In January 2022, the HKMA issued a dialogue paper on crypto-assets and stablecoins. Then in January 2023, the HKMA revealed the conclusion to the dialogue paper, which confirmed that the HKMA would take a “risk-based and agile method” in regulating stablecoins.

Because it labored on the town’s personal crypto rules throughout 2022, the HKMA additionally participated in growing regulatory requirements and proposals on stablecoins, particularly these of the Monetary Stability Board. The FSB is a world physique that screens and makes suggestions concerning the worldwide monetary system, and within the web3 realm, it has been described because the “de facto chief” in framing international crypto guidelines.

The proposed guidelines specified by the dialogue paper are, after all, topic to vary, however it presents an early glimpse into the town’s stance on stablecoin regulation. For one, the HKMA proposed to prioritize the event of a regulatory framework for stablecoins as a way of fee and begin with regulating stablecoins pegged to fiat currencies, since they’re extra prone to pose imminent monetary stability dangers.

As well as, the paper maintains that stablecoins should be totally backed by high-quality and high-liquidity property always. Stablecoins that derive their worth based mostly on arbitrage or algorithm won’t be accepted, which successfully guidelines out algorithmically stabilized tokens like UST. Stablecoin holders must also be capable of redeem the stablecoins into fiat currencies inside an inexpensive interval, the paper says.