June 15, 2023
By Tsering Namgyal
While the world remains wary about stablecoins in the aftermath of the Terra Luna scandal and the collapse of the crypto exchange FTX, Hong Kong appears to be moving ahead with regulations governing cryptocurrencies pegged to traditional assets.
The Hong Kong Monetary Authority (HKMA) has completed a public consultation on stablecoin regulations and aims to introduce clear regulatory guidelines for the stablecoin market by the end of 2024.
Joseph Chan Ho-Lim, Under Secretary for Financial Services and the Treasury of the government of Hong Kong, told a local newspaper that over the past five years, Hong Kong has emerged as a growing destination for fintech firms. Chan added that authorities are actively working to promote the Web3 ecosystem in the city.
Hong Kong started discussions on its stablecoin regulations in January 2022, with the HKMA sharing a list of eight questions about policy-related recommendations and citing five possible regulatory outcomes: 1) no action; 2) an opt-in regime; 3) a risk-based regime; 4) a catch-all regime; and 5) a blanket ban.
In January 2023, the outcome of regulatory discussions prohibited the incorporation of algorithmic stablecoins in its stablecoin regulatory framework, with the HKMA demanding all stablecoin issuers back up their values with underlying reserve assets at all times.
With the completion of the public consultation phase, the HKMA will focus on issuance, governance and stabilization.
Undersecretary for Financial Services and the Treasury Joseph Chan Ho-lim stated the number of fintech companies has increased dramatically over the past five years in Hong Kong. The former British colony will continue to expand its faster payment system to more industries. Furthermore, he added, the HKMA is working with the Bank of Thailand to develop the system.
Hong Kong and the US are moving in opposite direction when it comes to cryptocurrency regulations. While the US is tightening its regulations governing cryptocurrencies, Hong Kong on June 1 rolled out a licensing regime for crypto exchanges – that would make cryptocurrencies accessible to retail investors. Previously, only institutional investors were allowed trade crypto on a handful of licensed crypto exchanges.
Hong Kong’s bold move appears to be an attempt by the government and the regulators to make the city a competitive hub for Web3 and decentralized internet.
The latest step is also seen by some as turning Hong Kong into a sandbox for China where trading cryptocurrencies is currently illegal.
About the author
Tsering Namgyal is the chief content officer of NFTMetta.com.