Hong Kong prepares to introduce stablecoin regulatory framework

Hong Kong’s central banking institution, the Hong Kong Monetary Authority (HKMA), has release A questionnaire to assess public opinion on regulations for crypto assets and stablecoins, intended to establish a regulatory framework by 2023-24.

The HKMA’s “Crypto-Assets and Stablecoins Discussion Paper” highlights the stablecoin market’s boom in market capitalization since 2020 and the simultaneous regulatory recommendations issued by regulatory agencies International regulatory bodies include the US Financial Action Task Force (FATF), the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS).

Hong Kong begins discussions to introduce stablecoin regulatory framework

Market capitalization of crypto assets | Source: HKMA

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

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

Hong Kong begins discussions to introduce stablecoin regulatory framework

Market capitalization of major stablecoins | Source: HKMA

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

Hong Kong begins discussions to introduce stablecoin regulatory framework

Possible policy options for crypto-asset regulation | Source: HKMA

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

Hong Kong begins discussions to introduce stablecoin regulatory framework

Regulatory stances of major jurisdictions towards stablecoins | Source: HKMA

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

As a result, the HKMA considers expanding the scope of the Payment Systems and Stored Value Facility (PSSVFO) Ordinance, a law that determines 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 hold digital assets.

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Mr. Teacher

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