Hong Kong is looking to expand its crypto regulation to cover trading platforms and stablecoins and non-asset-backed cryptocurrencies.
The Hong Kong Central Bank is seeking comment on cryptocurrency regulation. The request for comment comes amid global concerns over the use of crypto for criminal activity.
The Hong Kong Monetary Authority has released a paper on the topic. “We emphasize issues that may affect the public’s confidence in, and the safety, efficiency, and soundness of our payment systems, and accord appropriate priority to the protection of users,” said the HKMA in the paper. Eddie Yue, the chief executive of the HKMA, points to crypto’s market cap as an indicator of the extent to which crypto has integrated with the existing financial system.
Banks relationship with crypto platforms
The document admits that there is growing interest from banks and customers to explore crypto opportunities. The report notes the upward trend in the market capitalization of crypto assets, especially since the pandemic outbreak. It also records that the HKMA considers non-asset-backed cryptocurrencies as primarily used for speculative purposes.
Concerning crypto asset service providers’ interaction with banks and traditional institutions, the paper strongly advises traditional institutions to adopt risk-mitigation measures before any with a crypto platform deal is finalized.
The country’s Securities and Futures Commission recently embarked on an exercise to create a membership regime for crypto trading platforms that could morph into a licensing regime to meet anti-money laundering and anti-money laundering requirements. financing of terrorism. Now, the HKMA is seeking comment on a broader range of issues, including stablecoins, investor protection, and financial institutions’ interaction with crypto assets.
The HKMA said in the paper that they see it necessary for stablecoins to be regulated before being used or marketed in Hong Kong. They also see a need to monitor potential risks that sharp crypto price corrections could pose to the traditional financial system.
Paper Results
The HKMA sees five possible outcomes to the request for comment. The first is “No Action”, the second is an opt-in/pilot scheme, the third a risk-based approach to address risks in a more focused way, the fourth a catch-all strategy to address risks more widely, and the last a total ban. The former option would see risk continue to grow, while the latter has the potential to stifle innovation.
In conclusion, the HKMA believes that employing a risk-based strategy would be the most appropriate way forward. They require responses to the paper to be submitted by March 31, 2022.
