Key Takeaways:
- Hong Kong begins discussions to introduce a stablecoin regulatory framework.
- Hong Kong regulator is seeking feedback from the public and stakeholders.
- HKMA listed five possible choices for regulating crypto assets.
The Hong Kong Monetary Authority (HKMA) on Wednesday issued a discussion paper on crypto-assets and stablecoins (the “Paper”), inviting views from the industry and public on the relevant regulatory approach. The state-backed regulator intends to establish a regulatory framework by 2023-24.
“The rapid development of crypto-assets, particularly stablecoins, is a topic of keen attention in the international regulatory community as it presents possible risks regarding monetary and financial stability. The HKMA has been closely tracking the relevant development and would like to proactively share our thinking with the public and industry,” said Mr Eddie Yue, the Chief Executive of the HKMA
HKMA’s “Discussion Paper on Crypto-assets and Stablecoins” emphasises the escalating growth of the stablecoin market in terms of market capitalization since 2020 and the concurrent regulatory recommendations put forth by international regulators including the United States’ Financial Action Task Force (FATF), the Financial Stability Board (FSB) and The Basel Committee on Banking Supervision (BCBS).
It listed five possible choices for regulating crypto assets, ranging from no action to a blanket ban. The Hong Kong Monetary Authority shared a list of eight questions to seek policy-related recommendations citing five possible regulatory outcomes — no action, opt-in regime, risk-based regime, catch-all regime and blanket ban.
The consultation comes against the backdrop of concerns among policymakers worldwide that crypto assets could be used for illicit purposes, or to take advantage of unsuspecting consumers.
According to the HKMA, the trading activity of crypto-assets may not pose an immediate threat to the stability of the global financial system from a systemic point of view. However, the discussion paper warned:
“The growing exposure of institutional investors to such assets as an alternative to or to complement traditional asset classes for trading, lending and borrowing indicate growing interconnectedness with the mainstream financial system.”
Furthermore, on the endnote, the regulator stated that payment-related stablecoins have a higher potential for being incorporated into the mainstream financial system or even day-to-day commercial and economic activities.
As a result, the HKMA considers expanding the scope of the Payment Systems and Stored Value Facilities Ordinance (PSSVFO), a law that determines the legality of financial products.
