June 23, 2023
By Anjali Kochhar
In a bid to establish itself as a prominent Web3 hub and fortify its virtual asset licensing regime, Hong Kong officials have pledged to introduce regulations for stablecoins by 2024.
The city’s commitment was emphasised during the South China Morning Post’s China Conference: Hong Kong 2023. Christopher Hui Ching-yu, Secretary for Financial Services and the Treasury, affirmed that Hong Kong aims to create a comprehensive and predictable regulatory environment for digital assets, aligning with the principle of “similar risk, similar regulation.” This principle advocates for the application of rules that mirror those governing financial markets to effectively regulate the cryptocurrency space.
Earlier this month, Hong Kong unveiled stringent retail trading rules and licensing guidelines for cryptocurrencies, solidifying its reputation for hosting one of the most rigorous regulatory frameworks for centralised crypto exchanges globally. This move has garnered widespread support from the crypto industry, with some industry leaders urging regulators to expedite the expansion of legitimate virtual asset activities, including derivatives and stablecoins—cryptocurrencies pegged to other assets, typically fiat currency.
The Hong Kong Monetary Authority (HKMA), acting as the city’s de facto central bank, had previously announced plans in January to introduce a mandatory licensing regime for stablecoin-related activities. The proposed regime will require platforms to maintain fully backed reserves for these tokens. Hui stated that regulators are actively developing the framework, which is projected to be implemented in the coming year. He emphasised the goal of cultivating a sustainable regulatory landscape that supports market growth while effectively managing associated risks.
Elizabeth Wong, Director of Licensing for the Securities and Futures Commission (SFC), the regulatory body responsible for enforcing Hong Kong’s new virtual asset trading rules, highlighted the agency’s efforts to develop its stablecoin policy in collaboration with the HKMA. Wong underscored the need to minimise overlaps between the two regimes and establish a clear plan for addressing any such overlaps. Additionally, the SFC is conducting a review to determine whether trading virtual asset derivatives should be permitted on licensed virtual asset trading platforms. Wong emphasised the necessity of addressing conflicts of interest, as these platforms often assume the roles of both derivative issuers and market players.
Despite the crypto industry experiencing a “crypto winter” marked by various setbacks, including the collapse of the Terra Luna stablecoin in May 2022 and the bankruptcy of FTX, formerly the world’s second largest crypto exchange, in November, Hong Kong remains committed to positioning itself as an international virtual asset hub. While this approach differs from mainland China’s ban on cryptocurrency trading, Wong explained that Hong Kong’s focus has always been on regulating to protect investors rather than relying solely on enforcement measures to encourage responsible behaviour. She argued that the challenges witnessed during the crypto winter underscored the importance of robust regulation to mitigate risks.
Hong Kong’s proactive steps to establish comprehensive regulations for stablecoins and explore rules for virtual asset derivatives reflect its determination to foster a secure and thriving digital asset ecosystem. By prioritising investor protection and promoting a sustainable regulatory framework, Hong Kong aims to solidify its position as a leading global destination for Web3 innovation and investment.
About the author
Anjali Kochhar covers cryptocurrency stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.