Hong Kong is starting a session interval on a brand new regulatory regime for stablecoin issuers within the metropolis, the Hong Kong Financial Authority (HKMA) introduced Wednesday.
The HKMA launched a thirty-page session paper for public remark till Feb. 24. Beneath the framework outlined within the paper, stablecoin issuers working in Hong Kong would want to acquire a license from the financial authority.
The session paper says stablecoin issuers ought to have “full backing” for all their circulating stablecoins. Notably, Terra’s algorithmic UST stablecoin was only partially backed earlier than collapsing in mid-2022. The HKMA stated UST’s de-peg “highlighted the urgency” of getting stablecoin regulation in place.
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The HKMA stated the brand new regulatory regime is required as a result of stablecoins are a “key channel” the place crypto-related dangers may spill over to the standard monetary system.
Stablecoins are a serious supply of liquidity in crypto, as they current buyers with an on-ramp from fiat forex. The whole market capitalization of stablecoins crossed $130 billion after reaching a low of roughly $123 billion in August, in accordance with DeFiLlama.
The paper additionally says issuers have to repeatedly disclose their reserve belongings to the general public, and stablecoin firm executives have to be “match and correct individuals.” Adjustments in administration would require consent from the financial authority.
Hong Kong has been energetic in crypto regulation this 12 months, hoping regulatory readability would make it a global hub for crypto. Town has seen a number of exchanges, together with Huobi, open trading in Hong Kong this year.
In early October, Hong Kong’s monetary regulators tightened controls on retail crypto buying and selling amid fallout from allegations of fraud by the trading platform JPEX. Across the identical time, a metropolis official said Hong Kong doesn’t enable retail buying and selling of stablecoins because it awaits a regulatory regime for the belongings.
Hong Kong’s rules are geared in the direction of fostering digital asset improvements in Hong Kong “in a sustainable method, whereas precise and potential dangers from the views of financial and monetary stability, shopper safety, in addition to cash laundering and terrorist financing, will be recognized and correctly addressed,” the HKMA stated.
A regulatory framework for stablecoins in Hong Kong has been within the works since January 2022. The HKMA said it might be individually releasing particulars for a “sandbox” implementation of the rules the place market individuals may talk with the regulator because it implements its new necessities.
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