HKMA issues discussion paper on crypto assets and stablecoins

By Tsering Namyal

January 14, 2022

The Hong Kong Monetary Authority (HKMA), the city state’s de facto central bank, has issued a discussion paper on January 12 on crypto-assets and stablecoins inviting views from the industry and public on the relevant regulatory approach.

The paper sets out the HKMA’s thinking on the regulatory approach for crypto-assets particularly payment-related stablecoins.

The approach has taken into account, among other things, the international recommendations, the market and regulatory landscape locally and in other major jurisdictions, and the characteristics of payment-related stable coins. To facilitate the stakeholders in sharing their views, the HKMA has highlighted certain issues in the form of questions and answers in the paper.

“The rapid development of crypto-assets, particularly stablecoins, is a topic of keen attention in the international regulatory community as it presents possible risks regarding monetary and financial stability,” said Eddie Yue, the chief executive of the HKMA.  “We look forward to hearing the feedback from stakeholders and will draw up a risk-based, pragmatic and agile regulatory regime on this front.”

Here are the questions in the discussion paper:

>>Question 1: Should we regulate activities relating to all types of stablecoins or give priority to those payment-related stablecoins that pose higher risks to the monetary and financial systems while providing flexibility in the regime to make adjustments to the scope of stablecoins that may be subject to regulation as needed in the future?
>>Question 2: What types of stablecoin-related activities should fall under the regulatory ambit, e.g. issuance and redemption, custody and administration, reserves management?
>>Question 3: What kind of authorisation and regulatory requirements would be envisaged for those entities subject to the new licensing regime?
>>Question 4: What is the intended coverage as to who needs a licence under the intended regulatory regime?
>>Question 5: When will this new, risk-based regime on stablecoins be established, and would there be regulatory overlap with other financial regulatory regimes in Hong Kong, including but not limited to the SFC’s VASP regime, and the SVF licensing regime of the PSSVFO?
>>Question 6: Stablecoins could be subject to run and become potential substitutes of bank deposits. Should the HKMA require stablecoin issuers to be AIs under the Banking Ordinance, similar to the recommendations in the Report on Stablecoins issued by the US President’s Working Group on Financial Markets?
>> Question 7: Would the HKMA also have plan to regulate unbacked crypto-assets given their growing linkage with the mainstream financial system and risk to financial stability?
>>Question 8: For current or prospective parties and entities in the stablecoins ecosystem, what should they do before the HKMA’s regulatory regime is introduced?

The HKMA will take into account the feedback and consider the next steps including assessing the need to issue further documents on specific aspects of the regulatory framework in 2022/23. They aim to introduce the new regime no later than 2023/24.

About the author

Tsering Namgyal is the chief content officer of the Blockchain Asset Review. 

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