The HKMA is currently analysing the pros and cons of introducing new regulations or amending existing laws concerning stablecoins. The HKMA issued a discussion paper on crypto-assets and stablecoins on 12 January 2022 and encouraged feedback from stakeholders.
The paper received 58 response submissions from public bodies, business and professional organisations, as well as individuals. Overall, the public is in favour of regulating stablecoins with a risk-based and agile approach adapted to evolving market conditions. Respondents also highlighted the need to consider market developments while gaining reference from the discussion of international regulatory bodies when developing the new regulatory regime.
Given the imminent monetary and financial stability risks that they may pose, the regulator wants to begin by regulating stablecoins backed by fiat currencies. HKMA officials cited by fintechnews.hk emphasised how an appropriate regulatory environment can help mitigate financial stability risks posed by stablecoins while supporting the sustainable development of the industry.
As per the conclusion summary of the discussed paper, the Hong Kong Monetary Authority has revealed plans to regulate the establishment and maintenance of the rules governing an in-scope stablecoin arrangement, as well as the issuance, creation or destruction of an in-scope stablecoin.
The regulator also wants to oversee the provision of services that allow the storage of the users’ cryptographic keys that enable access to the users’ holdings of an in-scope stablecoin and the management of such stablecoins.
Entities that will require a licence from the HKMA will include companies that conduct a regulated activity in Hong Kong, actively market a regulated activity to the public of Hong Kong, or conduct a regulated activity that concerns a stablecoin that purports to reference to the value of the Hong Kong dollar.
The paper summary also touched on key regulatory principles, namely regulatory requirements that will be developed in areas such as but not limited to ownership, governance and management, financial resources requirements, risk management, anti-money laundering and counter-terrorist financing, user protection, and regular audits and disclosure requirements.
Moreover, the reserve assets of a stablecoin arrangement should meet the value of the outstanding stablecoins at all times, and the reserve assets should be of high quality and high liquidity. Stablecoins that derive their value based on arbitrage or algorithm will not be accepted according to the paper summary.
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