February 2, 2023
By Tsering Namgyal
Hong Kong is set to require mandatory licensing for stablecoin issuers, the Hong Kong Monetary Authority (HKMA), the city-state’s de facto central bank, said on Tuesday. Those entities conducting regulated activity in Hong Kong will have to obtain a license to operate stablecoin services.
Here is what we know so far:
The HKMA has published its stablecoin regulatory framework after receiving feedback on a discussion paper published last year. It has received 58 responses and the regulator said it will set up a new regime to oversee stablecoins, crypto assets which are pegged to the price of other assets.
The HKMA plans to supervise the governance, issuance and stabilization of fiat-backed stablecoins, for which issuers must maintain reserves matching the amount of the crypto in circulation.
Stablecoin reserves have come under heavy scrutiny around the world since 2021, when the issuer of the top stablecoin by market capitalization, Tether showed much of its reserves were made up of unsecured short-term debt.
“The value of the reserve assets of a stablecoin arrangement should meet the value of the outstanding stablecoins at all times,” the report said. “The reserve assets should be of high quality and high liquidity. Stablecoins that derive their value based on arbitrage or algorithm will not be accepted.”
“In drawing up the specific regulatory arrangements, the HKMA will consider the feedback received, latest market development and international discussion. We will also engage with stakeholders and market participants. We expect to implement the regulatory arrangements in 2023/24,” HKMA Chief Executive Eddie Yue said in a press statement.
“On the whole, the respondents were supportive of regulating stablecoins with a risk-based and agile approach,” the statement said. “The respondents also broadly supported the need to take into account the latest market developments and draw reference from the discussion of international regulatory bodies when developing the relevant regulatory regime.”
About the author
Tsering Namgyal is the chief content officer of NFTMetta.com.
