A Quick Look at the Latest Proposed Scheme for Regulation of Cryptoassets and Stablecoins in Hong Kong
Compilation of the original text: Karen
in conclusionin conclusion》, roughly clarified the parameters of the proposed general supervision plan based on the feedback from the previous discussion papers, and will give priority to the supervision of stablecoins that refer to legal tender and may be used for payment, and make comments on supervisory activities, target implementation time, licenses, supervisory principles, etc. gave a detailed introduction.
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List of key information
1. On January 12, 2022, the Hong Kong Monetary Authority released a discussion paper on encrypted assets and stable coins and invited stakeholders to provide feedback. The discussion paper outlines the HKMA's thinking on prioritizing the development of a regulatory framework for payment-related stablecoins, arguing that such stablecoins may have the potential to develop into a widely accepted payment method while also providing institutional flexibility.
Second, since then, the encrypted asset market has continued to develop. However, it is worth noting that the stablecoin market experienced a lot of volatility and adjustments in May 2022 following the TerraUSD crash. There are also some cryptocurrency trading platforms in trouble and crisis, such as the FTX crash in November 2022. Against this backdrop, authorities have called for more comprehensive regulation of stablecoins to address the financial stability risks that stablecoins may pose. International regulators, international standard-setting bodies (SSBs) and some major jurisdictions have put forward more specific policy recommendations and regulatory measures or proposals for stablecoins.
3. An increasing number of major jurisdictions are prioritizing the regulation of stablecoins that claim to be referenced to fiat currencies, as regulators believe that such stablecoins are more likely to be used for payments and have links to the traditional financial system than other types of stablecoins Stablecoins or cryptoassets are more prone to more pressing monetary and financial stability risks. Major jurisdictions have also noted the importance of building appropriate flexibility into regulatory regimes to adjust the scope of regulation to respond to rapidly changing markets and international regulatory developments.
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Regulate what?
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Governance:
Governance:Establish and maintain rules for stablecoins within the scope of management (in-scope, here referring to stablecoins that may be used for payment with reference to legal tender);
issued:Issue, create or destroy relevant stablecoins;
stability:Stability and reserve management arrangements for stablecoins within the relevant scope (whether provided by the issuer or not);
wallet:secondary title
Which entities need to obtain an MAS license?
conduct regulated activities in Hong Kong;
actively market regulated activities to the Hong Kong public;
conduct regulated activities involving stablecoins purporting to be referenced to the value of the Hong Kong dollar;
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key regulatory principles
Comprehensive Regulatory Framework:Appropriate regulatory requirements audit and disclosure requirements will be developed in the areas of ownership, governance and management, financial resource requirements, risk management, anti-money laundering and countering the financing of terrorism (AML/CFT), user protection and regular monitoring.
Stablecoins should be fully backed and redeemable at par: the value of a stablecoin’s reserve assets should always match the value of outstanding stablecoins. Reserve assets should be of high quality and liquidity. Stablecoins that gain value based on arbitrage or algorithms will not be accepted. Holders of stablecoins should be able to convert their stablecoins at face value into the reference fiat currency within a reasonable period of time.
Main business restrictions:A regulated entity must not engage in activities that differ from its principal business as permitted by its relevant licence. For example, wallet operators should not engage in lending activities.
Target implementation date:2023/2024
Legislative method:The MAS is weighing the pros and cons of introducing new legislation and amending existing laws to implement the regulatory regime.
5. The HKMA will conduct a more detailed consultation in due course to provide further detailed information on the regulatory regime.
6. With regard to the wider field of encrypted assets, according to the "Policy Statement on the Development of Virtual Assets in Hong Kong" issued by the Hong Kong Special Administrative Region Government on October 31, 2022, the HKMA will continue to cooperate with the Hong Kong Special Administrative Region Government and financial regulators. Discussions are ongoing with other stakeholders and active participation in relevant international forums. The HKMA supports financial innovation and encourages institutions to explore the potential of distributed ledger technology (DLT) to support the development of Hong Kong's virtual asset ecosystem.
next steps
next steps
1. The Monetary Authority stated that after reaching a broad consensus on the proposed regulatory plan, the Monetary Authority intends to develop a flexible, risk-based (index) regulatory system for stablecoins. This will help ensure monetary and financial stability, protect users, and minimize the risk of regulatory arbitrage.
2. The Authority will consider the responses received and refer to relevant international discussions to formulate the details of the regulatory system. It will also continue to monitor market developments, engage with the industry, and cooperate with other interests of the Hong Kong SAR government and other financial regulatory agencies Stakeholder cooperation.
Third, more detailed consultations will be held in due course, providing more detailed information on the regulatory regime with a view to finalizing the main parameters to be covered by the draft legislation. In addition, the HKMA will conduct further assessments on certain issues, such as whether to introduce new legislation or amend existing laws to implement the proposed supervisory regime, how to minimize possible duplication of supervision, how to deal with the possibility that multiple or bundled Risks of financial services and local registration requirements.
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