Hong Kong warns of "overheating" risks for stablecoins

CN
8 hours ago

Author: Jiao Jian, Special Correspondent in Hong Kong for Caijing

"Stablecoins are not tools or means for making money or speculation. We hope the market returns to the original intention of launching stablecoins in Hong Kong, which is to use this financial tool to help the real economy and improve the efficiency of capital circulation."

After a series of favorable policies regarding the development of stablecoins and other digital assets were announced, as market enthusiasm continues to surge, several relevant regulatory departments in the Hong Kong Special Administrative Region have recently expressed the above viewpoint, emphasizing that the issuance and application of stablecoins are still in the exploratory stage, with high entry barriers and involving multiple levels of institutional construction or coordination, thus requiring cautious advancement.

In short, Hong Kong hopes to align the issuance and regulation of stablecoins comprehensively with a "traditional financial level" compliance framework.

The so-called "stablecoins" are digital assets designed to maintain a relatively stable value against certain assets (usually currencies). Stablecoins used as payment tools in relevant scenarios are also seen as a bridge or connection mechanism linking traditional finance and digital assets.

Globally, as expectations rise for the broader use of stablecoins, how to properly manage the various inherent and spillover risks that accompany this process is gradually becoming a focus of international regulation. At this year's Summer Davos Forum, IMF (International Monetary Fund) Vice President Li Bo stated that stablecoins could become very efficient means of payment and value storage, provided they are used moderately and effectively regulated.

Several relevant institutions in Hong Kong, including the Hong Kong Monetary Authority (HKMA), have been actively participating in the work of international regulatory organizations in recent years, including the Financial Stability Board (FSB), which released the "Global Crypto Asset Activity Regulatory Framework" in 2023. This framework provides a set of guiding international standards for regulating stablecoins, and the "underlying logic" of Hong Kong's relevant regulatory system is believed to be largely based on this.

On this basis, as one of the regions globally preparing to be the first to launch fiat stablecoins, Hong Kong's relevant institutional preparations and release pace are considered to have certain reference value. Combined with a series of viewpoints and attitudes recently revealed by local regulatory departments, the following points may be worth noting:

First, regarding entry barriers, the legal landing of fiat stablecoins in the Hong Kong Special Administrative Region is "not a hundred flowers blooming" in the initial stage.

In May of this year, the Hong Kong Legislative Council passed the "Stablecoin Ordinance" (hereinafter referred to as the "Ordinance"), introducing a licensing system for issuers of stablecoins pegged to fiat currencies in Hong Kong. According to the implementation steps, the Ordinance is set to take effect on August 1, at which point the HKMA will begin accepting license applications. This also marks the global launch of the first comprehensive regulatory framework for fiat stablecoins.

"Stablecoins, as a key tool connecting traditional finance and the Web3 ecosystem, have enormous potential but also come with potential systemic risks. The introduction of the Ordinance is precisely to provide a clear and predictable institutional environment for innovation while maintaining financial stability and consumer rights," said Fei Si, a partner at King & Wood Mallesons' Hong Kong office and a lecturer at the University of Hong Kong's Faculty of Law, in an analysis for Caijing. "The core of stablecoin regulation is 'stability.' By establishing a clear licensing system, strict compliance requirements, and comprehensive prudential regulation, we inject trust and transparency into the market. This institutional trust is a crucial guarantee for Hong Kong's digital asset ecosystem to attract global capital and serve global users."

On June 23, HKMA Chief Executive Eddie Yue explicitly mentioned in an article discussing the stability and sustainable development of stablecoins that stablecoins are not tools for investment or speculation, but one of the payment tools utilizing blockchain technology, with no appreciation space. Additionally, the anonymity and ease of cross-border use of stablecoins also pose regulatory risks, particularly in terms of anti-money laundering.

Regarding the highly anticipated number of licenses, Yue also clearly pointed out, "Considering that stablecoins are relatively new products, the risks involved in issuance, user protection, and the market's capacity and long-term development, the licensing has a relatively high threshold, and we expect that only a few licenses will be issued at most in the initial stage."

This numerical prediction is seen as "expectation management" in response to the local public opinion and a series of institutions' eager discussions about licensing. In fact, the HKMA will launch a "Stablecoin Issuer Sandbox" in early 2024, but entering this sandbox is not a prerequisite for applying for a stablecoin issuer license, and participating institutions do not necessarily guarantee a license.

The HKMA will launch a "Stablecoin Issuer Sandbox" in early 2024, but participating institutions do not necessarily guarantee a license. The standards set by the regulators are relatively high, almost on par with electronic wallet and bank regulations. Photo by Jiao Jian.

According to incomplete statistics from Caijing, there are currently at least nine institutions in the Hong Kong market that have expressed intentions to apply for or are rumored to be exploring license applications. This includes three groups of institutions participating in the HKMA's stablecoin sandbox, all of which plan to issue Hong Kong dollar stablecoins.

"We will carefully consider all license applications according to consistent and strict standards," Yue pointed out, noting that Hong Kong has set relatively strict standards for stablecoin issuers, with high entry barriers, almost on par with electronic wallet and bank regulations.

"Hong Kong is fully aligning the regulation of stablecoin issuance with a 'traditional financial level' compliance framework, especially raising higher requirements in areas such as anti-money laundering, transaction monitoring, and risk identification, proceeding steadily. For stablecoin issuers intending to enter the Hong Kong market, in addition to building a secure underlying infrastructure, establishing a compliance system covering the entire chain has become a key prerequisite for obtaining a license and achieving long-term compliant operations," explained Wade Wang, CEO of Safeheron, an enterprise-level self-custody service provider serving multiple compliant digital asset institutions, to Caijing. "The overall threshold is not low, and it is not easy for ordinary players to enter."

Second, regarding the timeline, the Hong Kong SAR government's stablecoin licensing is expected to be issued within this year.

On July 7, the Secretary for Financial Services and the Treasury of the Hong Kong SAR Government, Xu Zhengyu, stated in an interview with local media that the relevant parties of the Hong Kong SAR Government hope to receive applications after the Ordinance takes effect, and they strive to issue licenses within this year.

Just a week earlier, Xu emphasized that stablecoins should not be viewed as tools for making money or speculation. A market that resembles "Western cowboys" or "guerrilla tactics" has no long-term appeal; "to create a market that everyone trusts, Hong Kong's credibility comes from our high-quality financial regulation."

Lawyer Liu Honglin, founder of Shanghai Mankun Law Firm, which focuses on serving the Web 3.0 new economy sector, analyzed for Caijing that "single-digit licenses" and "the first batch of licenses to be issued within this year" actually reaffirm the overall regulatory approach to stablecoins in Hong Kong, which is not about full openness but cautious piloting and quantitative issuance. "This logic is actually the same as the previous licensing of virtual asset exchanges. What Hong Kong currently values more is compliance models and controllable risks, rather than the number of licenses."

According to Caijing, there are still multiple factors affecting the timeliness of license issuance. For instance, the HKMA is still consulting market participants on how to implement the Ordinance and will subsequently announce guiding policies, which will involve anti-money laundering (AML) and other related requirements.

Taking the establishment of an anti-money laundering regulatory system related to stablecoins as an example, key elements include KYC (Know Your Customer) and KYT (Know Your Transaction), with the former preventing high-risk users from entering and the latter monitoring on-chain transactions in real-time.

Wade Wang revealed some key nodes, such as to comply with Hong Kong's regulatory requirements, enterprises intending to engage in related businesses need to establish complete KYC/KYT processes, implement sanctions list screening, submit suspicious reports, and improve internal compliance and data management.

On this basis, digital asset service providers, such as custodians and compliance service providers, should have advanced AML and KYT capabilities, providing real-time, proactive early warning systems, dynamically tracking the flow of funds, and identifying suspicious transaction patterns to help enterprises more accurately detect and prevent money laundering and other illegal activities.

The establishment of this series of systems actually requires some time. "What truly determines whether digital assets can achieve large-scale, long-term implementation is not only the improvement of the regulatory environment but also the maturity and security of the underlying infrastructure. The widespread application of stablecoins, especially in key scenarios such as payments and settlements, must be built on a technology architecture with high security, high availability, and strong compliance. It is this 'invisible support system' that determines the sustainability and mainstreaming process of the digital asset industry," Wade Wang pointed out.

Third, regarding application scenarios, after relevant institutions are issued licenses, the specific focus of their use cases and whether they can be pegged to other fiat currencies currently have relatively high uncertainty.

Taking cross-border payments as an example, which is a challenging and painful issue in the real economy, according to general academic research views, if there are stablecoins based on fiat currencies, they can serve as effective payment tools to facilitate cross-border transactions and reduce transaction costs.

Public data shows that by 2024, the transaction volume supported by stablecoins has reached $27.6 trillion, exceeding the total transaction volume of global payment giants Visa and Mastercard.

However, stablecoins are not the only option; other new payment tools that can solve similar problems include CBDC (Central Bank Digital Currency) networks established in cooperation with some central banks, tokenized deposits planned for issuance by certain international banks, and cross-border connections of rapid payment systems, among others. These related payment tools each have their characteristics, varying degrees of maturity, and their development prospects are mainly determined by the market.

Moreover, globally, there is a very strong demand for stablecoins in practice, which is "asset preservation." Especially in countries with highly depreciated local currencies or unstable financial systems, such as some African countries, the penetration rate of stablecoins locally is already relatively high; they are not just payment tools but also a "dollar substitute" accessible to the general public. This case has been used by some local opinions in Hong Kong to exemplify the need to accelerate the release of stablecoins for multiple scenarios.

Liu Honglin believes that the Hong Kong SAR Government's statement also conveys a relatively clear attitude of cooling the market. "In the past period, expectations from various parties regarding the stablecoin sector have indeed been a bit overheated; everyone wants to issue, and everyone claims they can do it. But the regulators have clearly pointed out several practical issues, including that competition will be very fierce, there won't be many licensed institutions in the early stages, and there are concerns that if issued, no one will use them. Stablecoins without real scenario support are actually of little significance, and to avoid misleading ordinary investors by turning these products into 'pseudo-financial tools,' interest-bearing or incentive-based stablecoins are not allowed."

"Overall, the regulatory authorities in Hong Kong hope the industry will be a bit calmer, not rush to issue coins, but truly land around the actual needs of payments, settlements, and cross-border circulation in the real economy. This is the 'original intention' of Hong Kong's push for stablecoins," Liu Honglin pointed out.

Xu Zhengyu also noted that when stablecoins are used in scenarios such as cross-border transactions, they will involve different financial systems. If the locals in a region have little confidence in their own currency, once severe inflation or a sharp drop in currency exchange rates occurs, there will be a demand for using other currencies as payment means. If the financial system in that region cannot support other foreign currencies, stablecoins based on blockchain can serve as alternatives to local currencies. "In these cases, the benefits of stablecoins in cross-border transactions and payments can be clearly demonstrated."

Xu also pointed out that although the current Ordinance does not specify whether stablecoins pegged to specific currencies can be issued, "if it involves currencies from other jurisdictions, we need to weigh the impact on local exchange rates and consider various risks comprehensively. If it involves currencies from other jurisdictions, we must discuss with the relevant institutions."

The background of his statement is that some applicants in the Hong Kong market have recently publicly stated that in addition to planning to issue Hong Kong dollar stablecoins after obtaining licenses, they also hope to issue stablecoins pegged to the Renminbi.

In fact, Huang Yiping, Dean of the National School of Development at Peking University and a member of the Monetary Policy Committee of the People's Bank of China, recently stated in an interview with relevant media in mainland China that Hong Kong has an offshore Renminbi market, "If the offshore market develops, can we issue stablecoins pegged to offshore Renminbi in Hong Kong in the future? This is a possibility."

"Legally, there may not be obstacles to issuing stablecoins pegged to offshore Renminbi in Hong Kong. From the perspective of the strategy of Renminbi internationalization, it is also of positive significance," Liu Honglin believes. "However, in reality, we have also found that some entrepreneurial teams have encountered some legal and compliance issues during the trial process. This indicates that the current policies have not been fully clarified, and there is still a gap between market enthusiasm and regulatory coordination. If in the future, the central bank can more clearly express support for enterprises to legally and compliantly issue stablecoins based on offshore Renminbi overseas, it should be more conducive to promoting the improvement of the entire mechanism."

免责声明:本文章仅代表作者个人观点,不代表本平台的立场和观点。本文章仅供信息分享,不构成对任何人的任何投资建议。用户与作者之间的任何争议,与本平台无关。如网页中刊载的文章或图片涉及侵权,请提供相关的权利证明和身份证明发送邮件到support@aicoin.com,本平台相关工作人员将会进行核查。

ad
追热点必备!注册HTX领1500U
Ad
Share To
APP

X

Telegram

Facebook

Reddit

CopyLink