Hong Kong is gearing up to launch a stablecoin regulatory framework

Hong Kong’s central bank, the Hong Kong Monetary Authority (HKMA), has done so release A questionnaire to assess public opinion on regulations for crypto assets and stablecoins, aiming to create a regulatory framework by 2023-24.

The HKMA’s “Crypto-Assets and Stablecoins Discussion Paper” highlights the stablecoin market’s market cap boom since 2020 and the concomitant regulatory recommendations from regulators. International regulators include the US Financial Action Task Force (FATF), the Financial Stability Board (FSB). ) and the Basel Committee on Banking Supervision (BCBS).

Market capitalization of crypto assets | Source: HKMA

According to the HKMA, from a systems perspective, the current size and trading activity of crypto assets may not immediately threaten the stability of the global financial system. However:

“Institutional investors are increasingly engaging in such assets as an alternative or complement to traditional trading, lending and borrowing asset classes. […] shows a growing connection to the mainstream financial system.”

Market capitalization of the major stablecoins Hong Kong | Source: HKMA

The HKMA article puts the stablecoin market cap at around $150 billion as of December 2021, “roughly 5% of the total crypto-asset market.” The regulator also shared a list of eight questions to get policy-relevant recommendations, and identified five possible regulatory outcomes – inaction, opt-in mode, risk-based mode, catch-all and mass ban mode:

Possible policy options for regulating crypto assets | Source: HKMA

The HKMA expects stakeholders to submit their feedback by March 31, 2022, and is aiming to “get the new regime out no later than 2023/24”.

Regulatory attitudes of major jurisdictions towards stablecoins | Source: HKMA

In conclusion, the regulator says that payments-related stablecoins have higher potential to be introduced into the mainstream financial system or even into everyday economic and commercial activities.

As a result, the HKMA is considering expanding the scope of the Payment Systems and Stored Value Facility (PSSVFO) regulation, a law that establishes the legality of financial products.

To complement the local government’s pro-crypto intentions, one of Hong Kong’s largest real estate developers, Sun Hung Kai, has invested $90 million in Sygnum, a Swiss bank specializing in holding digital assets.

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