Hong Kong begins talks to introduce stablecoin regulatory framework


Hong Kong’s central banking institution, the Hong Kong Monetary Authority (HKMA), has released a questionnaire to gauge public opinion on crypto-asset and stablecoin regulation. The state-backed regulator intends to establish a regulatory framework by 2023-24.

HKMA’s “Crypto-Assets and Stablecoins Discussion Paper” Highlights Stablecoins Market’s Explosive Growth in Market Capitalization Since 2020 and Competing Regulatory Recommendations Made by International Regulators, Including the Action Group United States Financial Institutions (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, the current size and trading activity of crypto-assets may not pose an immediate threat to the stability of the global financial system from a systemic perspective. However, the working document warned:

“Institutional investors’ increasing exposure to these assets as an alternative or complement to traditional asset classes for trading, lending and borrowing […] indicate a growing interconnection with the traditional financial system.

Market capitalization of major stablecoins. Source: HKMA.

Based on the figure above, the HKMA document shows that the global market capitalization stood at around $150 billion in December 2021, “representing around 5% of the overall crypto-asset market”. The regulator also shared a list of eight questions to elicit policy-related recommendations citing five possible regulatory outcomes – no action, opt-in regime, risk-based regime, catch-all regime and blanket ban:

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Possible policy options for regulating crypto-assets. Source: HKMA.

HKMA expects stakeholders to submit their responses by March 31, 2022 and aims “to introduce the new regime no later than 2023/24”.

Regulatory position of major jurisdictions towards stablecoins. Source: HKMA.

In conclusion, the regulator stated that payment-linked stablecoins have greater potential for integration into the mainstream financial system or even day-to-day business and economic activities.

Accordingly, the HKMA is considering expanding the scope of the Payment Systems and Stored Value Facilities Ordinance (PSSVFO), a law that determines the legality of financial products.

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Related: Hong Kong real estate giant leads $90 million fundraising round for crypto bank Sygnum

Complementing the local government’s pro-crypto intentions, one of Hong Kong’s largest property developers, Sun Hung Kai, has invested $90 million in Sygnum, a Swiss bank dedicated to holding digital assets.

As TNZT reported, the Series B funding round brings Sygnum’s post-money valuation to $800 million, marking a tenfold increase in consolidated revenue from 2021.

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