The Hong Kong Monetary Authority will follow through on its proposal to regulate stablecoins, especially after failures in 2022 like the TerraUSD collapse.
The HKMA has completed its consultation period on the regulation of stablecoins in Hong Kong and issued a conclusion on the matter, according to a statement. It received 58 submissions from the industry, public bodies, business organizations, professional organizations and individuals with respondents generally supportive of regulating stablecoins with a «risk-based and agile approach».
«Taking into account the latest international recommendations and feedback received, the HKMA will further proceed with putting in place a regulatory regime,» the statement said.
The HKMA will aim to implement the new stablecoin regulatory regime in 2023 or 2024.
Activities to be Regulated
According to the central bank, it will adopt a risk-based approach in regulating stablecoins beginning with those that «purport to reference one or more fiat currencies» before reviewing other structures in the future.
In terms of activities, HKMA will regulate those linked to the governance, issuance, stabilization and reserve management of stablecoins as well as related wallets.
Reserve Assets
The HKMA placed emphasis on backing and redemption, requiring the value of reserve assets to meet the value of outstanding stablecoins at all times while prohibiting those that derive their value based on arbitrage or algorithms. Stablecoins are also required to be redeemable «within a reasonable period».
«[T]he stablecoin market experienced much price volatility in May 2022 subsequent to the collapse in value of TerraUSD. Some crypto exchanges also ran into trouble, e.g. FTX in November 2022,» the HKMA noted.
«Against this backdrop, authorities have called for more comprehensive regulation of stablecoins to address the financial stability risks that they could potentially pose.»
