HKMA First Targets In 2023: Stablecoins Linked To Value Of Legal Currencies

Key Points:

• The Hong Kong Monetary Authority plans to regulate stablecoins linked to legal currencies due to the monetary and financial stability risks they pose.
• The HKMA believes that with proper regulation in place, the industry can safely explore the potential of digital finance.

The Hong Kong Monetary Authority emphasizes that the first targets of regulation in 2023 will be those stablecoins advertised as being linked to the value of one or more legal currencies.

According to the HKMA, these stablecoins pose higher and more imminent monetary and financial stability risks, hence the need for regulation.

“As a priority, we will start with regulating stablecoins that purport to reference to one or more fiat currencies, given the higher and more imminent monetary and financial stability risks that they may pose. We believe that with the right guardrails in place, the industry can explore the potential of digital finance in a safe and healthy manner.”

The HKMA believes that with proper guardrails in place, the industry can safely and healthily explore digital finance’s potential. As such, the regulatory updates will prioritize the regulation of stablecoins and strengthen the collaborative eco-system response to money laundering and terrorist financing risks. This will be complemented by specific guidance on a proportionate approach to the Politically Exposed Person requirements, which will support effective risk-based industry implementation of fundamental legislative changes.

In addition to the above, the HKMA will broaden the scope of existing public-private partnerships and support the launch of bank-to-bank information sharing to enable faster detection of suspicious accounts and deter abuses. This will increase protection for victims of fraud and facilitate recovery of their losses.

The HKMA will also focus on Regtech adoption, including data analytics, through AML Regtech Labs and other AML/CFT Regtech initiatives. The HKMA aims to develop a macro analytics capability to complement its data-driven AML/CFT supervision. This will enable quicker action in response to systemic ML/TF risks such as mule account networks and stay agile in responding to evolving threats.

The HKMA’s regulatory initiative is a timely response to the growing popularity of stablecoins, which are increasingly used for cross-border transactions and remittances. While these digital assets offer many benefits but pose significant risks if not adequately regulated. The HKMA’s move to regulate stablecoins is a step in the right direction toward ensuring a safe and healthy digital financial ecosystem.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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