Hong Kong begins discussions to introduce stablecoin regulatory framework

The Hong Kong Monetary Authority shared a list of eight questions to seek policy-related recommendations citing five possible regulatory outcomes — no action, opt-in regime, risk-based regime, catch-all regime and blanket ban.

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

HKMA’s “Discussion Paper on Crypto-assets and Stablecoins” highlights the explosive growth of the stablecoin market in terms of market capitalization since 2020 and the concurrent regulatory recommendations put forth by international regulators including the United States’ 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, 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 point of view. However, the discussion paper warned:

“The growing exposure of institutional investors to such assets as an alternative to or to complement traditional asset classes for trading, lending and borrowing […] indicate growing interconnectedness with the mainstream financial system.”

Market Capitalization of Major Stablecoins. Source: HKMA.

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

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

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

Major jurisdictions’ regulatory stance towards stablecoins. Source: HKMA.

On an end note, the regulator stated that payment-related stablecoins have a higher potential for being incorporated into the mainstream financial system or even day-to-day commercial and economic activities.

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

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

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