Hong Kong Edges Closer to Regulatory Framework for Stablecoin, Lawmaker Says

While China’s regime harbors a fierce hostility toward cryptocurrency, the government of Hong Kong appears to be going in the other direction, if the views of local politician Duncan Chiu are any indicator.

Chiu, a member of Hong Kong’s Legislative Council, said at a recent gathering that he expects the territory to roll out guidelines for stablecoin issuers by the middle of 2024, according reports from local media cited by The Block.

Hong Kong May Codify Stablecoin Issuer Guidelines by Next Year

According to the reports, Chiu said that significant progress toward the finalizing of guidelines is underway. At present, lawmakers are in the midst of a second round of consultations on the issue, he said.

Chiu has taken a bold stand at odds with that of Chinese officials. The latter tend to vacillate between hostility and grudging acceptance of crypto. In September 2021, China’s central bank issued a blanket ban on the digital currency.

In more recent months, the regime’s stance has proven inconsistent at best. At the end of August, Chinese officials came out with a surprising ruling recognizing crypto as legal property.

But whatever hope this may have given pro-crypto citizens in China and Hong Kong may have faded amid a crackdown on people engaging in crypto transactions. Including a life sentence for a former senior official in Jiangxi province who had ties to crypto mining firms.

The regime accused the former official of taking bribes, but this may have been only a pretext for the harsh sentence.  

Learn more about asset managers’ dilemma about doing business in China’s complex regulatory environment.

Hong Kong Cracks Down on Unlicensed Operations

If Chiu’s predictions are correct, it is, obviously, good news for firms and exchanges. Many of them see opportunities in Hong Kong’s burgeoning fintech and crypto markets.

But the progress toward a framework for stablecoin issuance does not signify a laissez-faire approach. On the contrary, the Hong Kong Monetary Authority (HKMA) just last week issued a stern warning about unlicensed businesses.

Such bad actors, the regulator warned, may promote themselves as banks or even in some cases as crypto banks. To adopt any such moniker, without proper registration and licensing, violates Section 97 of the territory’s Banking Ordinance, the HKMA said.

“Under the Banking Ordinance, only licensed banks, restricted license banks and deposit-taking companies (collectively known as authorized institutions), which have been granted a license by the HKMA can carry out banking or deposit-taking business in Hong Kong,” stated the regulator.

If you place any funds in the accounts of crypto firms purporting to be banks, be aware of the risks, the HKMA added. Your money will not enjoy any protections under the Hong Kong Deposit Protection Scheme.