Hong Kong’s top financial regulator announced on January 31 that Hong Kong will require stablecoin issuers to obtain licenses and will not allow algorithmic stablecoins. Once the regulation is implemented, operators operating stablecoin services in Hong Kong will need a license.
The Hong Kong Monetary Authority (HKMA) has set out its regulatory plans after receiving feedback on a discussion paper it released last year. Based on the 58 responses, we will build a system to supervise stablecoins, which are crypto assets (virtual currencies) whose value is fixed to other assets such as the US dollar.
The HKMA initially plans to oversee the governance, issuance and stabilization of fiat-backed stablecoins, requiring issuers to maintain reserves commensurate with the amount of crypto assets in circulation. Tether, the issuer of the top stablecoin by market cap in 2021, has revealed that much of its reserves are made up of unsecured short-term debt. Since then, it has been subject to intense regulatory scrutiny around the world. Major economies such as the United States, the European Union (EU), and Japan are also working to regulate stablecoin issuers.
“The value of reserve assets should always exceed the value of issued stablecoins,” Hong Kong officials said. “Reserve assets should be of high quality and liquidity. No stablecoins that derive value based on arbitrage or algorithms.”
Tether (USDT), an algorithmic stablecoin whose value was supposed to be maintained by another crypto asset, collapsed last May.
“We will take into consideration the feedback we have received, the latest market developments and international debates when negotiating specific regulations. We will also have discussions with stakeholders and market participants. We look forward to implementing the regulatory arrangements in 2023-24,” HKMA Governor Eddie Yue said in a press release.
｜Translation: coindesk JAPAN
｜Editing: Toshihiko Inoue
｜Original: Hong Kong to Require Stablecoin Licensing as Early as This Year
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