Hong Kong officials said they are committed to introducing regulations for stablecoins by 2024 as they review crypto derivatives rules as the city aims to strengthen its virtual asset licensing regime and become a global Web3 hub.
Christopher Hui Ching-yu, secretary for financial services and the treasury, said at South China Morning Post’s China Conference: Hong Kong 2023 that the city will continue to pursue a holistic and predictable regulatory approach to digital assets through the principle of “similarity” risk to follow, similar regulation,” which describes the need for rules to regulate the crypto space, similar to financial markets.
Hong Kong launched its Retail Rules and Licensing Guidelines for cryptocurrencies earlier this month, representing one of the world’s most demanding regulatory frameworks for centralized crypto exchanges.
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The crypto industry has broadly supported the new regime, and some industry leaders have called on regulators to take faster steps to expand the scope of legitimate virtual asset activity into derivatives and stablecoins, which are cryptocurrencies linked to a other asset, usually fiat currency.
The Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, announced plans in January to introduce a mandatory licensing regime for stablecoin-related activities.
Christopher Hui Ching-yu, secretary for financial services and the treasury (center), speaks at the Post China Conference: Hong Kong on Tuesday. Photo: May Tse alt=Christopher Hui Ching-yu, Minister of Financial Services and Finance (center), speaking at Post China Conference: Hong Kong on Tuesday. Photo: May Tse>
Hui said regulators are working on the regime, which is expected to be implemented next year. “What we have done and will continue to do is put together a sustainable regulatory framework in such a way that we can grow this market while ensuring that the relevant risks are managed,” he said.
Elizabeth Wong, licensing director of the Securities and Futures Commission (SFC), which enforces Hong Kong’s new virtual trading regime, said at the same event that the agency is also formulating its own stablecoin policy and will work with HKMA.
“We’re working with them to make sure there isn’t a lot of overlap between our regimens and if there are overlaps, we need to figure out how to deal with that,” she said.
The SFC is also conducting a review on whether or not to allow trading of virtual asset derivatives on licensed virtual asset trading platforms, Wong said.
“What we need for our purposes is the conflicts of interest,” because virtual asset platforms can play the role of derivative issuer as well as market player, she said.
Elizabeth Wong, director of licensing and head of the fintech unit at the Securities and Futures Commission, says the agency is formulating its own stablecoin policy. Photo: May Tse alt=Elizabeth Wong, director of licensing and head of the fintech unit at the Securities and Futures Commission, says the agency is formulating its own stablecoin policy. Photo: May Tse>
Hong Kong has pushed ahead with its ambitions to become an international virtual asset hub despite the industry suffering a “crypto winter” after a series of slumps, from the collapse of the Terra Luna stablecoin in May 2022 to the bankruptcy of FTX, formerly the world’s largest crypto exchange, in November.
While Hong Kong’s move appears to deviate from policies in mainland China, where cryptocurrency trading is banned, Wong said the city’s approach has always been to “regulate to protect investors” rather than ” use enforcement as a tool to encourage good behaviour”.
“I think the crypto winter has really justified this approach…because the problems we have seen as a result of the crypto winter have largely come from the lack of regulation,” she said.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, explore the SCMP app or visit SCMP’s Facebook page Twitter Pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.
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