Official bodies in Hong Kong are looking to tighten rules governing digital assets in the course of the next 1.5 years at the most, as the region aims at turning into a prime fintech destination. This was corroborated by David Chiu a member of the Legislative Council of the Hong Kong Special Administrative Region made during the third annual Foresight Conference in Hong Kong on the 11th of August.
“The progresses, said Chiu, has been made over the past few years; however, the industry is still in its budding phase.” He proceeded to explain Hong Kong’s future blueprint to lure talented technological personnel, put in place conducive frameworks, and provide adequate vigilance over the technology and assets apart from bitcoin.
A particular emphasis in the future updates of the regulation will be placed on stablecoins. These are usually anchored to a fiat currency to help them have an inherent value and this is why they have become an area of interest to the global regulators. Chiu pointed out the need to “build a proper exchange system and in the near future introduce legislation regarding stabilcoins. ” As he stressed this approach would be paramount to the technology industry in the next five to 10 years.
Stablecoin Regulation Focus
Decentralized coins have evolved since and are already widely used such as Tether (USDT) and Circle’s USDC. Although they have become more numerous, it introduces possible dangers for the normal financial system. The need to control such assets is derived from the fact that they are popularly used and are associated with systematic risks.
Chiu said within the next 18-months, the Hong Kong government wants to step up scrutiny and ensure laws governing digital asset financial products like stablecoins. The government has already tested various structures in sandbox to identify an approach to be taken in the preparation of the ongoing legislation.
The authorities of Hong Kong have already been preparing for the stablecoin regulation for several years. The subject was first raised in a discussion paper prepared by the Hong Kong Monetary Authority (HKMA) in 2022. One year later, the central bank make their last proposition of an “agile and risk-based approach”.
In June 2023, the HKMA said it will complete the paper on stablecoin regulation by the end of 2024. To manage this tension the government started consultations, with finals guidelines being planned for later this year. In September last year, the HKMA launched the second round of consultation with regard to the regulation of a stablecoin.
HKMA Licensing and Sandbox
After the consultation period, which is to start soon, HKMA’s intention is to implement a legal regime for fiat currency-backed tokens that would oblige them to obtain a license from the central bank. “As the integration between the conventional financial sector and the virtual asset market continues to grow closer, the HKMA is at the moment still developing the regulatory framework for the issuance of stablecoins in Hong Kong,” the HKMA added in March.
In this regard, the HKMA has recently introduced the sandbox arrangement that will provide the market participants with the opportunity to give their feedbacks to the proposed regulatory demands.
Paul Chan, Hong Kong’s financial secretary, mentioned the stablecoin plan during his 2024 budget speech; the government wants to establish a stablecoin testing ground for issuers. “The HKMA will soon launch a ‘sandbox’ for organizations that wish to issue stablecoins ‘to experiment under controlled circumstances,” Chan said.
In July the HKMA revealed the first entrants to this sandbox as being a firm affiliated with a large Chinese e-tailer, a Hong Kong based fintech firm and a group of Standard Chartered Bank, Animoca Brands, Hong Kong Telecommunications and Jingdong Coinlink Technology. This coalition wants to launch a stablecoin tied to the Hong Kong dollar in the ratio of 1:1.
The statements from Hong Kong’s financial authorities that the region plans to increase control over digital assets and stablecoins show the area’s desire to take the position of a global fintech hub. That is why the world will be watching as the city gets ready to unleash the above measures.
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