On 12 January 2022, the Hong Kong Monetary Authority (“HKMA”) issued a discussion paper on crypto-assets and stablecoins (“Discussion Paper”) outlining its thoughts on the development of a regulatory framework for stablecoins, and invited feedback from members of the public and the industry.
The HKMA published the consultation conclusion (“Consultation Conclusion”) on 31 January 2023. It summarises the feedback received on the Discussion Paper and sets out the HKMA’s responses. There was a broad consensus among the respondents on regulating stablecoin based on a risk-based and agile approach.
Having considered the responses received, the latest international regulatory recommendations, standards and approaches on crypto-assets and Hong Kong’s overall policy stance, the HKMA has formulated the following key parameters for the proposed regulatory regime for crypto-assets:
- The HKMA will adopt a risk-based approach by giving priority to regulating stablecoins that purport to reference to one or more fiat currencies. Appropriate flexibility will be built-in to the proposed regime to enable the HKMA to adjust the scope of regulation in the future (e.g. scope in other stablecoin structure(s)).
- A mandatory licensing regime will be introduced to regulate key activities relating to stablecoins, such as:
- Governance: establishment and maintenance of rules governing an in-scope stablecoin arrangement;
- Issuance: issuing, creation or destruction of in-scope stablecoins;
- Stabilisation: stabilisation and reserve management arrangements of an in-scope stablecoin (whether or not such arrangements are provided by the issuer); and
- Wallets: provision of services that allow the storage of users’ cryptographic keys which enable access to the users’ holdings of in-scope stablecoins and the management of such stablecoins.
- The licensing requirement will apply to entities which (i) conduct a regulated activity in Hong Kong concerning in-scope stablecoins (specifically, stablecoins that purport to reference the value of the Hong Kong dollar); (ii) actively market such regulated activity to the public of Hong Kong; or (iii) the HKMA is of the opinion should be so regulated, having regard to matters of significant public interest.
The HKMA will conduct a more detailed consultation in due course, with a view to implementing the stablecoin regulatory regime by 2023/24. The Consultation Conclusion can be found here.
For further information, please contact:
Simon Deane, Deacons
simon.deane@deacons.com
