Regulatory Authorities Of Hong Kong Are Developing New Regulations For Stablecoins

Hong Kong’s Monetary Authority (HKMA) which is currently working on finalizing the new monetary policy seems skeptical of algorithmic stablecoins.

According to the officials of HKMA, they did not find any place for the algorithmic stablecoins in the country’s upcoming legal framework.

Moreover, the chief financial regulator has also told the media that once the new regulatory paradigm will be enforced all the stablecoin issuers will be responsible for backing the stablecoins with respective assets.

According to the HKMA, Hong Kong needs to follow the “risk-based and agile” approach for the cryptocurrency industry to grow stronger and be more regulated.

On Jan.31, the HKMA published a report consisting of the discussions being held by the regulators. The reports summarized a total of 58 submissions made by the regulators over the course of the time.

The majority of the Regulators Emphasized Risk-based and Agile Approach

The majority of the submissions concluded that it is important for authorities to rely on the risk-based and agile approach to make the country’s crypto industry mature.

These newly proposed regulatory provisions are expected to be part of monetary policy 2023/24.

These provisions will become part of monetary policy either as the new legislation or regulators should amend the already existing provisions to accommodate these new provisions.

As per the reports, the regulators have discussed the entire crypto industry, but they have prioritized regulating the stablecoins.

The reason that stablecoins have been the primary focus of the legislation is simple, stablecoins are pegged with the fiat currency. Hence, stablecoins can significantly impact the fiat currency.

Issuer and Buyer Both Will be Liable to Follow These Regulations

It is worth mentioning that upcoming crypto regulations of Hong Kong authorities regarding stablecoins will apply to both the issuer and the receiver.

All those crypto companies who are already issuing stable coins while operating in Hong Kong and all the newly launched stablecoin currencies developers will have to follow these regulations.

Similarly, all those investors or people thinking about investing in stablecoins have to follow these newly proposed provisions after their implementation.

Stablecoins whose value is established by speculation or algorithm will not be authorized by the federal government for trade.

As such stablecoins can mislead investors, the submissions concluded.

Moreover, the regulators have also proposed that stablecoin holders will be permitted to withdraw their stablecoins in terms of respective fiat currency within a specific period.

According to the HKMA officials, they want to develop a comprehensive mechanism of trade for stablecoins by regulating stablecoins.

This newly proposed legal framework will be based on the principle of full backing and redemption on a parity basis.

By doing so, the country’s regulators will keep the companies intact and there will be no room for companies to deviate from their principal operations. Moreover, the investors will not be deceived easily.

As of this writing, the regulators have only focused on the issuance of stablecoins, their governance, and stabilization.

But there are some other interesting aspects of stablecoins that are yet to fall within the focus range of regulators.

Those aspects specifically deal with the process of how to exchange and peg the stablecoins with various fiat currencies and how stablecoins will operate and be managed.

On the flip side, a recent report published by CryptoCompare documented that the current market share of algorithmic stablecoins stands at around 1.71%.

Once these new provisions will be applicable, algorithmic stablecoins will be declared null and void in Hong Kong.

The market share of such sort of stablecoins reached its all-time high back in April 2022.

Talking of the crypto community of Hong Kong, has shown mixed sentiments about this newly proposed legal framework.

But despite all these facts, the majority of the people have liked these newly proposed provisions as these provisions are designed to make the crypto industry mature and less misleading.

It seems that the Federal government of Hong Kong has decided not to show any tolerance towards algorithmic stablecoins.

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