Hong Kong’s central financial institution has published the conclusion of its dialogue paper on crypto property, and has introduced plans to introduce a brand new regulatory regime for stablecoins.
The announcement follows a yr of volatility in cryptocurrency markets marked by the sudden collapse of main crypto change, FTX, in November, and that of TerraUSD stablecoin, in May.
Peter Burnett, managing director at Standard Chartered Bank’s Hong Kong department, believes that regulatory motion within the crypto area was to be anticipated in gentle of latest occasions, however notes that that the HKMA will likely be eager to not stifle innovation.
“If you look at recent events in the cryptocurrency world, it’s clear that regulation is on its way. They’re [the HKMA] not necessarily going to regulate the technology – it’s how the technology is applied that needs attention.”
“I think it’s an important distinction. We want to encourage the development of the technology but then regulate how it is being used commercially,” he informed FinanceAsia.
In January 2022, the HKMA published a dialogue paper inviting business specialists to submit suggestions on the territory’s future dealing with of digital property. It obtained 58 submissions by the March-end deadline.
The report concluded that stablecoins (digital currencies backed by fiat) could be the primary precedence given their higher potential to be used as alternate options to fiat in funds, and therefore current extra imminent danger to the territory’s financial and monetary stability.
The report detailed the important thing stablecoin actions that might be regulated as: governance; issuance; stabilisation and reserve administration; and wallets.
It flagged events that might be required to acquire a licence as people who conduct regulated stablecoin actions in Hong Kong; actively market a regulated exercise to the general public; or conduct actions which concern a stablecoin linked to the Hong Kong greenback.
Source: HKMA Conclusion of Discussion Paper on Crypto-assets and Stablecoins, January 2023
Rocky Tung, director and head of coverage analysis on the Financial Services Development Council (FSDC), famous that not solely Hong Kong however most “global reputable financial markets” are converging in the direction of introducing standardised digital asset laws.
“While some participants may consider that opportunities for regulatory arbitrage would exist across different markets, what the HKMA has announced is a responsible way to address both the considerations of investor protection and [to foster] market facilitation,” he informed FA.
He believes that the HKMA’s strategy to digital property will serve for example for different main monetary markets which are drafting their very own laws within the area.
The market, in the meantime, awaits additional particulars on the brand new framework.
“A more detailed consultation, with more granular information about the regulatory regime, will be conducted in due course,” the HKMA report reads.
Kishore Bhindi, Hong Kong-based monetary regulatory counsel at Linklaters, stated, “The next consultation paper from the HKMA on the topic will be more interesting to see as it’ll include more details on the nuts and bolts that will make up the regime for stablecoins.”
“The current consultation conclusions are fairly light on detail and what has been set out to date isn’t necessarily path-breaking in its content nor its direction of travel.”
He added that whereas the present focus seemed to be on stablecoins, Hong Kong’s regulators had been nonetheless “very interested” in different digital purposes of the know-how and had been conscious of the necessity for regulation in different areas.
A brand new licensing scheme for digital asset service suppliers is because of take impact in March this yr.
Read additionally: Clarification around HK’s virtual assets policy comes amid FTX collapse.
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