The Hong Kong Monetary Authority (HKMA) has completed a consultation on stablecoin regulation and aims to introduce clear regulatory guidelines for the stablecoin market by the end of 2024.
Joseph Chan Ho-Lim, Under Secretary for Treasury and Financial Services of the Hong Kong government, said that over the past five years, Hong Kong has become an increasingly important destination for fintech companies. Chan added that the authorities are actively working to promote the Web3 ecosystem with a focus on investor protection.
Hong Kong kicked off discussions about its stablecoin regulations in January 2022, with the HKMA sharing a list of eight questions on policy-related recommendations, citing five potential regulatory outcomes: 1) no action; 2) an opt-in regime; 3) a risk-based regime; 4) a general regime; and 5) a blanket ban. In January 2023, the outcome of regulatory discussions outright prohibited the incorporation of algorithmic stablecoins into its stablecoin framework, and the HKMA required all stablecoin issuers to back their securities with underlying reserve assets at all times.
With the completion of the public consultation phase, the HKMA will focus on issuance, governance and stabilization.
Hong Kong has taken the lead in regulating cryptocurrency in 2023, at a time when most of its Western counterparts continue to take a cautious approach to the fledgling sector. The HKMA has not only opened up cryptocurrency trading to retail traders, but has also put in place a licensing regime for cryptocurrency exchanges that requires them to adhere to strict anti-money laundering regulations.
In addition to Hong Kong, the US House Committee on Financial Services is also looking into regulating the stablecoin market. The committee has introduced three stablecoin bills in 2023, the latest of which proposes key powers for the Federal Reserve and some intervention power for state authorities.
The approach of the local regulators in both countries could not be more different. On the one hand, Hong Kong regulators are actively seeking to turn the country into a cryptocurrency hub, while on the other, actions by US regulators could force many established companies to relocate out of the country, including stablecoin issuers.. The US Securities and Exchange Commission has accused several stablecoin issuers of violating securities laws, including taking action against the issuer of Binance USD (BUSD), Paxos Trust.
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