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Hong Kong is regulating stablecoins while the West debates how to regulate them.
According to local media, the Hong Kong Monetary Authority (HKMA) is seeking public feedback on stablecoins and plans to introduce a regulatory framework by 2024.
After TerraUSD (UST) and FTX collapsed, the U.S. government toughened its stance on the crypto industry, but China’s crypto community applauded Hong Kong’s policy clarification.
Hong Kong started requiring exchanges to get licenses on June 1. Retail investors will be able to trade Ether and Bitcoin on licensed exchanges under the new rules.
The region has gone the opposite way from mainland China, where crypto trading is illegal. Hong Kong’s history as China’s sandbox may explain its welcoming attitude.
Hong Kong finally regulated stablecoins. The HKMA released a crypto-asset and stablecoin discussion paper in January 2022. In January 2023, the HKMA published the discussion paper’s conclusion, confirming its “risk-based and agile” stablecoin regulation.
During 2022, the HKMA helped develop stablecoin regulatory standards and recommendations, especially those of the Financial Stability Board. The FSB monitors and advises on the global financial system and is the “de facto leader” in web3 crypto rules.
The discussion paper’s stablecoin regulations are subject to change, but they provide a preview of the city’s approach. The HKMA suggested prioritizing the development of a regulatory framework for stablecoins as a payment method and starting with stablecoins pegged to fiat currencies, which are more likely to pose financial stability risks.
Stablecoins must always be backed by high-quality, liquid assets, according to the paper. Arbitrage-based stablecoins like UST will not be accepted. The paper says stablecoin holders should be able to redeem them into fiat currencies within a reasonable timeframe.
