Regulation of Hong Kong provides for coins with reserve assets only
2023.01.31 10:36
Regulation of Hong Kong provides for coins with reserve assets only
By Ray Johnson
Budrigannews.com – The Hong Kong Monetary Authority (HKMA) did not include algorithmic stablecoins in the key principles of its upcoming regulatory framework. Instead, the chief financial regulator will require that every stablecoin issuer always use underlying reserve assets to back up their values.
The HKMA published the consultation conclusion to the discussion paper on cryptocurrencies and stablecoins on January 31, presenting a synopsis of the responses to 58 submissions. The regulator reiterates the well-known formula of a “risk-based and agile” approach in its summary, which is essential for the developing cryptocurrency industry.
The consultation process suggests that the regulatory arrangements will be implemented in 2023 or 2024, either as new legislation or as amendments to existing laws. Stablecoins that “purport to reference to one or more fiat currencies” should be regulated first, as the paper repeatedly states.
Companies that “actively” market their products to the Hong Kong public and issuers that directly operate in Hong Kong would be required to follow the new licensing procedure. The most important regulatory principles stressed the significance of full backing and par redemption:
Stablecoins will not be accepted if they derive their value from arbitrage or an algorithm. Within a reasonable amount of time, holders of stablecoins ought to be able to exchange them for the mentioned fiat currency at par.
Based on the concept of full backing and redemption at par, the HKMA intends to create a comprehensive regulatory framework for stablecoins. Additionally, it would prevent the businesses from deviating from their primary business. The paper gives the case of wallet operators, who would not be permitted to lend money.
Some stablecoin-related activities “may not be captured” in the regulatory scope at first because the regulation would concentrate on issuance, governance, and stabilization. Purchase or exchange of a stablecoin using fiat currency, operation and management of centralized stablecoin lending services, the issuance of crypto-asset debit and credit cards, and the operation of crypto-asset ATMs or exchange shops are all examples of these.
The algorithmic stablecoin market share currently stands at 1.71 percent, according to a CryptoCompare report, while its all-time high was 12.4 percent in April 2022.
