Market regulators in Hong Kong are moving to regulate stablecoins.
The Hong Kong Monetary Authority (HKMA) has said that it will require cryptocurrency firms to keep their principal business and have a locally incorporated entity in Hong Kong if they want to obtain licenses to issue stablecoins.
Stablecoins are cryptocurrencies whose value is pegged to another asset, typically the U.S. dollar or the price of gold.
The decision by regulators in Hong Kong to clarify regulations pertaining to stablecoins comes as the U.S. Securities and Exchange Commission (SEC) cracks down on the cryptocurrencies.
In recent weeks, the SEC has charged and fined several stablecoin issuers for dealing in what it calls “unregulated securities.”
The collapse last year of several high profile stablecoin issuers, including Terraform Labs and its algorithmic Terra stablecoin, has prompted regulators worldwide to start regulating stablecoins.
Currently in Hong Kong, stablecoins must be fully backed by high-quality liquid assets and be redeemable to their referenced fiat currencies at par. Under current regulations, algorithmic and arbitrage stablecoins are not allowed in the Chinese special economic zone.
New regulations pertaining to stablecoins in Hong Kong are expected in coming months. The proposed changes will cover entities if they actively market or operate stablecoins in Hong Kong, and are expected to also increase the number of licenses an issuer requires.
Going forward, crypto firms may need a “stablecoin wallet license” to operate in Hong Kong.
The HKMA has said repeatedly that it is focused on ensuring the stability of Hong Kong’s financial system.
