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HKMA Stablecoin Regulations to Demand Backing by Underlying Assets

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The Hong Kong Monetary Authority (HKMA) was not successful in identifying a location within the core concepts of the regulatory architecture that it indicated that would be appropriate for algorithmic stablecoins. This is something that is going to take place in the not too distant future. Instead, the chief regulator of the financial system will issue a mandate that will require all issuers of stablecoins to guarantee that the value of their coins is always backed up by underlying reserve assets. This regulation will be enforced by the primary regulator of the financial system.

The Hong Kong Monetary Authority (HKMA) made the announcement on January 31 that the consultation conclusion to the discussion paper on stablecoins and cryptocurrencies will be published. At the very end, a synopsis of the comments that were obtained from the 58 separate responses is presented below for your perusal. The regulatory authority, in the executive summary of its report, emphasises the need for a “risk-based and agile” strategy, which is a concept that has been more prominent in recent years. The rapidly expanding bitcoin corporation absolutely has to use this technique.

According to the results of the process of consultation, it is anticipated that the regulatory arrangements will be made in the years 2023 or 2024, either in the form of completely new legislation or in the form of revisions to the laws that are already in place. This could take place in either of two ways: either the laws will be revised to reflect the new circumstances, or completely new laws will be drafted from scratch. Both of these scenarios are viable options for how this may play out. The need of implementing controls on stablecoins that “purport to correspond to one or more fiat currencies” was brought up several times throughout the whole of the paper. This point was emphasised on a number of different occasions. This is the first stage in the process that will be carried out from here on out.

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