• The Hong Kong Monetary Authority (HKMA) has proposed a new regulatory framework for stablecoins that would be implemented no later than 2024.
• According to the HKMA, algorithmic stablecoins will not be accepted, and stablecoin issuers will have to back up their values with reserve assets.
• The regulatory arrangements are expected to be in the form of new legislation or amendments to the existing laws.
The Hong Kong Monetary Authority (HKMA) has recently published a consultation conclusion to the discussion paper on crypto and stablecoins, outlining a new regulatory framework for stablecoins which will be put into effect no later than 2024. In the key principles outlined by the HKMA, algorithmic stablecoins are not accepted, and stablecoin issuers will be required to back up their values with underlying reserve assets at all times.
The HKMA received 58 submissions during the consultation process, and based on the feedback, the regulatory arrangements are expected to arrive either in the form of new legislation or amendments to the existing laws. The priority will be to regulate stablecoins that are designed to reference one or more fiat currencies. Any stablecoin issuers that conduct their business in Hong Kong, as well as those that actively market their products to the Hong Kong public, will have to go through a licensing process.
The key regulatory principles state that stablecoin holders should be able to redeem their stablecoins into the referenced fiat currency at par within a reasonable period, and algorithmic stablecoins will not be tolerated. The HKMA has also expressed its intention to establish an appropriate supervision and enforcement regime, create an effective dispute resolution framework, and put in place safeguards to protect users and provide regulatory clarity.
The HKMA is also planning to launch an innovation hub to provide a platform for fintech companies to develop and test their products, as well as to encourage collaboration between players in the fintech and traditional financial services sectors. The innovation hub will also be used to promote the development of financial technology in the region, as well as to provide a safe and conducive environment for the development of new digital initiatives.
The new regulatory framework for stablecoins in Hong Kong is an important step in the region’s journey towards a more mature and robust cryptocurrency landscape. With these new rules, Hong Kong will be able to ensure that the growth of the cryptocurrency sector is done in a safe, secure and compliant manner, while also providing greater clarity for market participants.