February 2, 2023
HONG KONG – Hong Kong’s virtual-asset community has expressed firm support for the results of the Hong Kong Monetary Authority’s consultations on crypto-assets and stablecoins, saying it’s a strong shot in the arm for the city’s financial technology development.
The response came after the special administrative region’s de-facto central bank laid out its regulatory plans on Tuesday for stablecoins – digital tokens designed to maintain a one-to-one value with a less volatile asset – saying a mandatory licensing regime will be needed for stablecoin issuers as early as this year.
“We certainly welcome this possible new regulatory approach as stablecoins will play a bigger role in the future, not only in the digital-asset ecosystems,” said Agost Makszin, co-founder of Lendary Asia Capital – a Hong Kong- and Germany-based alternative investment firm that offers credit for trading in virtual assets.
“It’s also another step in the right path that could help put the city on the map, as transparency and security are the key elements in digital assets these days,” he said.
The Hong Kong Monetary Authority will prioritize regulating stablecoins that “purport reference to fiat currencies”, for which issuers must maintain enough reserves to meet the value of circulating tokens at all times
Notable downfalls in the global virtual-asset market in 2022 have put stablecoins under regulatory scrutiny by major jurisdictions. In May last year, TerraUSD – the then-largest algorithmic stablecoin by market capitalization – lost its parity to the greenback, causing a multibillion-dollar collapse.
To start with, the HKMA will prioritize regulating stablecoins that “purport reference to fiat currencies”, for which issuers must maintain enough reserves to meet the value of circulating tokens at all times.
“An appropriate regulatory environment will help address financial stability risks possibly posed by stablecoins, and promote the orderly and sustainable development of the industry,” said HKMA Chief Executive Eddie Yue Wai-man.
In drawing up the specific regulatory arrangements, the HKMA will consider the feedback received, the latest market developments and international discussions, along with engaging with stakeholders and market participants, he said.
Duncan Chiu, who represents the technology and innovation functional constituency in the Legislative Council, said the new policy on virtual assets and the progress in building a digital space regulatory regime mark a “new milestone” in Hong Kong’s financial technology development.
He said the direction proposed for stablecoins is considered conservative, but correct concerning testing new financial products more comprehensively, while providing better protection for citizens’ investments.
The HKMA’s proposal is a crucial component of the city’s plan to become an international virtual-asset hub. In October last year, the HKSAR government issued a policy statement on the development of virtual assets in Hong Kong, proposing a vast array of measures, including a new licensing regime for virtual-asset service providers and tokenization of green bonds.
Looking ahead, Chiu hoped that the government could conduct public consultations on retail investment in virtual assets and the issuance of security token offerings to gradually establish a sound regulatory system, as well as a healthy and sustainable ecosystem for the digital space.