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Hong Kong Issues New Rules For Stablecoin Issuers

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Hong Kong Monetary Authority [HKMA] is inching closer to implementing a regulatory regime for the nation’s fiat-based stablecoin [FRS] issuers. As per the press release, the market watchdog has published a consultation report on these asset classes, mandating issuers to establish physical companies in the country. The report also includes requirements for custody and prohibits issuers from providing interest to users.

Per the blog post, the public consultation concluded this February and secured 108 submissions from market participants, industry associations, business and professional organizations, and other stakeholders. Major market players like crypto exchange Binance and stablecoin giant Circle participated in the two-month-long consultation.

Hong Kong’s regulatory body will soon announce the list of sandbox participants.

A vast majority of respondents agreed that with the increased prevalence and evolving development of virtual assets (VAs), a regulatory regime should be introduced for FRS issuers, to facilitate proper management of the potential monetary and financial stability risks, as well as provide transparent and suitable guardrails. The proposed regulatory requirements and implementation arrangements received general support from respondents, with some further enhancements suggested in the submissions.

HKMA and The Financial Se­rvices and the Treasury Bure­au [FSTB] jointly conducted a thorough consultation on stablecoin issue­rs, in Decembe­r last year. The move paved the way for creating a re­gulatory framework specifically for these­ digital assets.

As earlier reported by TronWeekly, the Dece­mber consultation proposed a licensing re­gime for all fiat-backed stablecoin issue­rs. Under the new regime, entities issuing stable­coins pegged to traditional currencie­s, like the US dollar [USD], would be required to seek authorization from the Hong Kong Monetary Authority, the city’s de­ facto apex bank.

Hong Kong: Regulations Will Boost Investor Confidence-Expert

Furthermore, the FSTB emphasized that only lice­nsed entities would be able to sell stablecoins to retail investors. This e­ncompasses authorized institutions such as banks, license­d corporations, and cryptocurrency trading platforms. The proposed re­gulations establish guidelines for re­serve manageme­nt, stability mechanisms, redemption proce­sses, and corporate governance­ to create a secure­ and reliable environme­nt for both issuers and users.

Market watchdogs believe that the introduction of regulatory frameworks for licensed platforms can be a game-changer, bolstering investor trust. Hu Zhenbang, financial director of OSL Group, noted that this regulatory clarity might play a key role in luring companies back from rival markets like Singapore.

Hong Kong Monetary Authority Prepares For Second Tokenized Green Bond Launch

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Hong Kong is poised to launch its second tokenized green bond in the coming months, with the Hong Kong Monetary Authority (HKMA) utilizing blockchain technology to improve efficiency and transparency in the redemption process, according to a report from Chinese newspaper Ming Pao. CEO Yu Weiman disclosed the plans in anticipation of “Green Finance Week” in February 2024.

This event aims to foster discussions on green financial transformation, including a global climate business forum in collaboration with the International Finance Corporation under the World Bank. 

Hong Kong’s Global Green Brand Takes Center Stage During Green Finance Week

Weiman highlighted the goal of bolstering Hong Kong’s global green brand during the Green Finance Week, with various financial institutions organizing green finance activities to enhance the city’s reputation in the field.

Yu Weiman underscored the symbiotic relationship between green finance and financial technology, particularly in the issuance of the second tokenized green bond. The HKMA is actively exploring blockchain-based redemption processes to improve operational efficiency. 

Additionally, the authority is investigating the integration of blockchain technology and the Internet of Things (IoT) for tokenized green bonds, allowing bondholders to gain comprehensive insights into their investments and reduce the risk of “greenwashing.”

Weiman also noted the substantial growth in Hong Kong’s green bonds and green loans, which surged to approximately US$80 billion from US$11 billion just two years ago. He expressed confidence in the continued momentum of green finance, emphasizing the potential for further expansion.

In June, Hong Kong implemented new regulations for the crypto industry, allowing retail investors to trade virtual assets. This marked a departure from previous restrictions limiting digital asset trading to professional investors and traders with at least $1 million in bankable assets. 

As part of these regulations, the Securities and Futures Commission (SFC) has granted licenses to crypto exchanges, with OSL and Hashkey Group becoming the first in the city to receive such licenses. These exchanges also offer crypto-to-fiat conversion services through ZA Bank, Hong Kong’s largest online-only bank.

Notably, the crypto exchange Hong Kong VAEXC (VAEX) has recently applied for a virtual asset trading platform license with the SFC. The JPEX scandal, considered one of the largest financial frauds in Hong Kong’s history, has spurred the government to expedite the approval process for cryptocurrency products, aiming to promote compliance in the industry.

Hong Kong’s Crypto Renaissance: 5 Regulatory Innovations After JPEX Scandal

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In the wake of the recent $165 million scandal involving the crypto exchange JPEX, the Hong Kong government is doubling down on its commitment to foster the growth of the Web3 market. In a statement from Hong Kong Fintech Week, Christopher Hui, the Secretary for Financial Services and the Treasury, delivered a keynote address outlining the regulatory moves Hong Kong authorities are set to implement, reassuring stakeholders that the JPEX scandal will not deter their vision for the region’s digital future.

The JPEX scandal, in which 2,500 locals alleged they were defrauded by the Dubai-based exchange, prompted swift action from the Hong Kong authorities. The Securities and Futures Commission (SFC) warned that JPEX was promoting its services locally without a license, leading to a call for tighter crypto regulations in the region.

Hui emphasized that the government’s commitment to the Web3 market remains unwavering. He asserted,

“We’ve been asked many times whether JPEX will affect our determination to grow the Web3 market — the answer is a clear ‘no.'”

This determination is reflected in the multifaceted approach being taken by Hong Kong regulators.

Crypto Task Force Targets Illicit Exchanges

The SFC has set up a task force in collaboration with the police to combat illicit crypto exchange activities. Furthermore, the SFC will provide guidance on tokenized securities and the tokenization of SFC-authorized investment products, reinforcing its commitment to facilitating responsible innovation within the crypto space.

Notably, the scope of crypto regulation in Hong Kong will expand beyond regulated trading platforms to cover all buying and selling activities, ensuring a comprehensive and robust framework.

A highly anticipated joint consultation on stablecoins by the Hong Kong Monetary Authority (HKMA) and the Financial Services and the Treasury Bureau is on the horizon. This initiative will solicit feedback on a January discussion paper and is expected to have a significant impact on the regulatory landscape.

Hui also revealed that the HKMA will engage with the sector to provide guidance on banks offering digital asset custodial services, signaling the growing involvement of traditional financial institutions in the crypto space.

In conclusion, the JPEX scandal may have exposed vulnerabilities in Hong Kong’s crypto sector, but it has not shaken the government’s determination to foster a thriving Web3 market. The regulatory moves outlined by Christopher Hui demonstrate Hong Kong’s resilience and commitment to nurturing responsible growth in the crypto industry, ensuring that it remains an attractive destination for blockchain and digital asset innovation.

Redefining The Crypto Horizon: Hong Kong’s Dynamic Regulatory Shifts

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To adapt to the evolving landscape of the crypto industry, the Hong Kong Securities and Futures Commission (SFC) has made significant updates to its virtual asset policy. These changes, outlined in a joint circular with the Hong Kong Monetary Authority (HKMA), aim to regulate the distribution of virtual asset-related products and services. The policy, which was last revised in 2018, is being adjusted to account for the rapidly evolving landscape of crypto assets and the growing interest from intermediaries.

Opening Doors for Retail Crypto Investors

The SFC and HKMA have observed a surge in inquiries from intermediaries regarding virtual asset-related products (VA-related products) and the provision of virtual asset-dealing services. To address this, the policy has been revised to provide more detailed guidelines and protection for investors.

The main changes include a distinction between professional and non-professional investors in distributing VA-related products. Complex VA-related products will now only be available to professional investors, while non-professional investors must undergo assessments of their knowledge regarding virtual assets. If they lack this knowledge, intermediaries must provide appropriate training.

Despite the increasing popularity of virtual assets globally, regulatory standards remain inconsistent. The risks associated with virtual asset investments, such as lack of regulation for service providers and potential market manipulation, continue to exist. Consequently, VA-related products are considered complex and subject to strict suitability requirements.

In addition to the complex product requirements, the SFC and HKMA have introduced further investor protection measures for specific risks related to these products. Selling restrictions will now be imposed on complex VA-related products, limiting their distribution to professional investors. Intermediaries must also conduct virtual asset-knowledge tests for non-professional clients.

Regarding the provision of virtual asset dealing services, intermediaries will now only be allowed to partner with SFC-licensed platforms, ensuring a higher level of investor protection. Furthermore, the SFC and HKMA have emphasized that intermediaries should be cautious when providing financial accommodation for VA-related products. They should ensure clients have the financial capacity to manage potential losses.

These updates aim to protect crypto investors in the ever-expanding world of virtual assets. Intermediaries are expected to align their systems and controls with these new requirements, and new entrants or those extending their services must ensure compliance from the outset.

The SFC and HKMA also stress the importance of informing them of any intentions to engage in activities related to virtual assets and tokenized securities and to provide notifications of any changes to these activities.

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Hong Kong Central Bank Joins Forces With Saudi Arabia Amid UAE’s Crypto Surge

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Hong Kong Monetary Authority (HKMA) and Saudi Central Bank (SAMA) Forge Momentous Financial Collaboration with MoU. Following a Successful Partnership with UAE Central Bank, HKMA Aims for Enhanced Financial Services and Innovations

The Saudi Central Bank (SAMA) and the Hong Kong Monetary Authority (HKMA) convened on July 26 for a bilateral meeting to enhance the integration of financial services between their respective nations.

During the meeting, the HKMA and the SAMA addressed various initiatives, including financial infrastructure advancement, open market operations, market connectivity, and sustainable development. Additionally, the central banks formalized their commitment to fostering collaborative discussions on financial innovation by signing a memorandum of understanding (MoU).

As per an official joint statement, HK and Saudi Arabia authorities also utilized the occasion to exchange knowledge and expertise in various domains, including tokenization, payment infrastructure, and supervision technologies.

According to Eddie Yue, who serves as the Chief Executive of the HKMA:

The MoU, in particular, will further enhance mutual cooperation as well as exchange of information and expertise between the SAMA and the HKMA in financial innovation and Fintech. We look forward to working with the SAMA to promote investment and financial market connectivity between the Middle East and Asia.

Hong Kong Emerges As Leading Crypto Hub With Pro-Crypto Regulation

Recently, Hong Kong has been determined to establish itself as a prominent global crypto hub. To this end, the region has unveiled a comprehensive crypto licensing regime and virtual asset regulations designed to attract and nurture crypto-related businesses. The pro-crypto regulatory environment has proven highly appealing, leading numerous crypto exchanges and firms to seek licenses in HK, driven by the escalating demand for digital assets.

Hong Kong is actively engaged in multiple cross-border tokenization projects. In mid-June, BOCI, the investment bank subsidiary of the Bank of China, launched a $28 million tokenized security within Hong Kong. The tokens were created on the Ethereum blockchain, utilizing Goldman Sachs’ tokenization protocol GS DAP, with each token representing a claim on the Hong Kong dollar.

The collaboration between Hong Kong and Saudi Arabia marks a pivotal moment in strengthening financial ties and fostering innovation in the financial sector. As this partnership unfolds, it is expected to have far-reaching implications, not only regionally but also on the global economic stage.

Related Reading:| Hong Kong’s Stablecoin Dream: HKDG Aims To Redeem

Crypto Regulation: Hong Kong Takes A Different Approach Amidst US Strengthening

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In response to the United States’ recent efforts to tighten cryptocurrency regulations, Yue Wai-man, President of the Hong Kong Monetary Authority (HKMA), highlighted HK’s shift towards a more relaxed stance. 

Hong Kong’s Evolving Crypto Regulations

Yue acknowledged that the US lacked clear regulatory requirements for virtual assets in the past, while countries like Singapore and Dubai had implemented regulations addressing functions such as anti-money laundering. 

Taking lessons from global experiences, including the collapse of FTX, Hong Kong has gradually moved away from its stringent standards and implemented strict yet transparent regulations.

Previously, Hong Kong had imposed strict regulations on virtual assets, almost approaching a state of prohibition. However, with the regulatory landscape aligning across various regions, the potential for regulatory arbitrage resulting from differing standards is expected to diminish in the future.

Last month, the HKMA visited the United Arab Emirates (UAE) and engaged in discussions with the local central bank regarding virtual asset regulation. 

President Yu Weiwen revealed that both Hong Kong and the UAE have embarked on developing virtual assets within regulated environments. 

As Hong Kong was among the first to introduce a regulatory framework, the UAE expressed interest in learning from its experience. Meanwhile, the United States has recently intensified its regulation of crypto assets.

Addressing concerns that many major banks in Hong Kong do not accept account openings for crypto asset exchanges, Yu Weiwen emphasized that the authorities have constantly communicated with the banks. 

Since virtual assets are relatively new, banking regulations have primarily focused on traditional financial businesses. Therefore, the industry must continually update its understanding and align its regulatory expectations with the authorities. 

Financial institutions undergo a rigorous review by regulatory agencies once licensed, with specific attention to anti-money laundering measures and customer account verification. Account openings are assessed on a case-by-case basis, following a risk-based approach.

Additionally, Yu Weiwen shared that the goal is to launch the “simplest feasible product” by early next year. While more central banks are expected to join the platform, he emphasized the importance of maintaining a manageable scale in the initial stages. 

Challenges remain in determining platform management responsibilities, whether to adopt a decentralized approach, and how to adhere to local regulatory rules, provide liquidity, and collect collateral.

As Hong Kong forges its unique path in cryptocurrency regulation, striking a balance between oversight and fostering innovation remains crucial. 

The gradual relaxation of regulations, combined with lessons learned from global counterparts, positions Hong Kong to navigate the evolving landscape of virtual assets effectively.

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