Hong Kong Monetary Authority, FSTB, Stablecoins

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Hong Kong
The Financial Services and the Treasury Bureau and the Hong
Kong Monetary Authority today paved the way towards creating
a regulations for stablecoin issuers in Hong Kong.

“Stablecoins” are a type of cryptocurrency where the value of the
digital asset is supposed to be pegged to a reference asset,
which is either fiat money, exchange-traded commodities, or
another cryptocurrency.

Commenting on its two-month consultation that ended in February
2024, the organisations said the “vast majority” of respondents
agreed that with the increased prevalence and evolving
development of virtual assets (VAs), a regulatory regime should
be introduced for fiat-reference stablecoin (FRS) issuers. The
regime should enable “proper management of the potential monetary
and financial stability risks, as well as providing transparent
and suitable guardrails”, the bodies said in a statement. 

Stablecoins have been controversial. In 2022, two main
stablecoins from the crypto project Terra collapsed, prompting
the Group of Seven club of industrialised nations to raise the
alarm about the crypto and digital assets space more generally.
Terra dollar sister token Luna fell dramatically. PGIM,
investment arm of US-listed Prudential Financial, warned in 2022
that cryptocurrencies such as bitcoin were a “poor choice” for
long-term investors and make portfolios riskier and more
volatile.

The drama came at a time when digital assets – a term covering a
variety of entities ranging from cryptocurrencies to tokens and
smart contracts, have become more “mainstream,” gaining business
from wealth managers, banks and other regular institutions.

Hong Kong,
as explained in this article, is seeking to capture a slice
of the market as it works on reviving its fortunes as an
international financial hub, following the disruptions of the
pandemic and geopolitical change.

“In addition to the existing regulatory regime for VA trading
platforms, the establishment of a licensing regime for FRS
issuers will further strengthen the VA regulatory framework in
Hong Kong in line with international standards and effectively
mitigate possible financial stability risks associated with FRS
issuance activities,” the Secretary for Financial Services and
the Treasury, Mr Christopher Hui, said.

The FSTB and the HKMA said a bill will be introduced into the
Legislative Council as soon as possible.

“We believe that introducing a regulatory regime for FRS issuers
to facilitate proper management of the potential monetary and
financial stability risks, while providing transparent and
suitable guardrails, is a highly suitable and effective
approach,” ZA Bank, which operates in the stablecoins space,
said. “This will contribute to the sustainable and responsible
development and promotion of stablecoins, as well as the thriving
web3 ecosystem, in Hong…