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Regulators in Hong Kong are set to establish guiding principles for stablecoins by the end of 2023.
The news is the latest in a series of crypto-focused regulations by Hong Kong, with the city reversing its previous cryptocurrency-friendly stance.
Stablecoin Rules Coming to Hong Kong
The Hong Kong Monetary Authority (HKMA) has announced an update to its planned stablecoin regulatory regime. The HKMA described this at the end of a call for discussion papers on crypto assets and stablecoins. Published On January 31.
Hong Kong’s financial watchdog wants to create a licensing regime for stablecoin issuers.
The HKMA also monitors the activities of companies issuing fiat-backed stablecoins. These are stablecoins backed by national currencies, for example Tether USD (USDT), which is pegged to the US dollar.
The HKMA report said that issuers of fiat-backed stablecoins must hold sufficient reserves to back their tokens. These reserves must be of high quality, which refers to the coins used to maintain the balance of the stablecoin with the underlying fiat currency.
Hong Kong’s regulatory regime will have no place Algorithmic Stablecoins, according to the report. Algo stablecoins are not backed by fiat currency reserves. They are backed by crypto tokens whose stakes are maintained through supply expansion and contraction mechanisms.
Some algorithmic stablecoins have collapsed in the past Terra USD (UST), Terra was part of the ecosystem.
Hong Kong’s Growing Crypto Clarity
A recent report points to Hong Kong’s drive to ensure crypto transparency. HKMA chief executive Eddie Yu said it plans to implement stablecoin rules by the end of 2023.
Hong Kong regulators have recently outlined plans for several crypto regulations.
The city’s Securities and Futures Commission said only retail traders should be present Permitted Disclosure Highly liquid assets. The move is part of efforts to reopen the city’s crypto trading scene, which has been significantly restricted in recent years.
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