Regulatory Policy for Virtual Currencies and Stablecoins
The Hong Kong Monetary Authority announced on January 31st its policy on the regulation of crypto assets (virtual currencies) and stablecoins. It presents regulated activities and a comprehensive regulatory framework, primarily for stablecoins.
The Monetary Authority issued a consultation paper on cryptocurrency and stablecoin regulation in January last year, soliciting comments from various interested parties. This policy was established while taking into consideration the feedback from various places.
58 groups provided their views on the consultation document. Among them, major companies in the industry such as Web3 major Animoka Brands, the largest virtual currency exchange Binance, Ripple, and R3 were listed.
Relation: Hong Kong Monetary Authority Issues Agreement on Regulation of Virtual Currencies and Stablecoins
What is a stablecoin
A cryptocurrency whose price is always stable. Stablecoins are a type of cryptocurrency, and unlike volatile assets such as BTC, ETH, and XRP, the purpose is to maintain its value ($1) backed by the US dollar. In addition to US dollar-backed stablecoins (USDT/USDC), there are also stablecoins that use algorithms such as DAI and UST.
The Monetary Authority will require licenses to be obtained for entities conducting activities related to stablecoins. We will assess the risk according to the structure of the stablecoin and adopt an approach to minimize it.
First, as a matter of priority, we will prioritize the regulation of stablecoins whose value is tied to the legal currency. These stablecoins are judged to pose more financial and financial stability risks than others. In the future, we plan to regulate other stablecoins as well.
The regulated activities include stablecoin management and operation, issuance, value stabilization, provision of reserves, and provision of wallets.
Businesses that require a license from the Hong Kong authorities include businesses that conduct regulated activities in Hong Kong, businesses that provide services in Hong Kong, and businesses that conduct activities related to stablecoins tied to the value of the Hong Kong dollar. Become.
No collateralized stablecoins allowed
The Monetary Authority also laid out the principles of regulation. First, it requires full backing and redemption at face value.
Regarding “fully backed”, unsecured stablecoins that stabilize value through arbitrage trading or algorithms are not allowed. He added that the value of stablecoin reserve assets should always match the value of outstanding stablecoins and should be highly liquid.
As a background, in May last year, the price of the stablecoin UST, whose value was supported by algorithms, collapsed, triggering a chain of defaults in the cryptocurrency market.
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The Monetary Authority also stipulated that regulated businesses should not engage in activities that deviate from the business permitted under a given licence. For example, it is considered inappropriate for wallet operators to conduct lending operations.
Other areas such as stablecoin ownership, risk management, anti-money laundering and counter-terrorist financing, user protection, auditing and disclosure will also be developed with regulatory requirements.
Hong Kong active in virtual currency
The Hong Kong government is pursuing policies to promote the development of the cryptocurrency industry. Last December, Hong Kong’s parliament passed a law introducing a licensing system for cryptocurrency service providers.
In January, the Hong Kong Securities and Futures Commission CEO said he was working on rules to allow retail investors to trade cryptocurrencies.
Relation: Hong Kong authorities to allow individual investors to trade virtual currencies
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