Requiring foreign entities that have issued stablecoins to set up a Hong Kong entity could create complications.
At the end of January, the Hong Kong Monetary Authority (HKMA) said that based on the conclusion of its consultation, companies may be required to retain their main business and have a locally registered entity in Hong Kong if they want to obtain a stablecoin license.
The MAS’ current position is that stablecoins must be fully backed by high-quality liquid assets (which the MAS has yet to elaborate on) and be convertible at face value into their reference fiat currency. Under this system, algocoins and arbitrage coins are actually not allowed.
The collapse of Terraform Labs and the algorithmic UST stablecoin last year prompted global regulators to focus on regulating stablecoins.
Hong Kong’s stablecoin regulations could come as early as this year. The proposed regime would cover entities actively marketing or operating in Hong Kong. It would also increase the number of licenses issuers need.
CoinDesk contacted the HKMA to ask whether non-Hong Kong stablecoin issuers like Tether would be regulated under its upcoming regime.
A representative of the HKMA said, “The regulatory treatment of different types of virtual assets will depend on factors such as their actual structure and operational details.”
“We will continue our ongoing discussions with the industry with a view to adopting a risk-based, pragmatic and agile approach to regulating stablecoins,” the representative said, adding that the regulator will “consult further on the specific details.”
Wallet providers now obtain a “trust or company service provider” license, but under the new regime they may need a stablecoin wallet license.
Issuers of widely used stablecoins like Tether (USDT) may have to set up a registered entity locally.
CoinDesk reached out to stablecoin issuers Tether and Paxos for comment. At the time of publication, they had not responded to questions about whether they were interested in applying to be regulated under the proposed stablecoin regime.
A spokesperson for Circle did not directly respond to inquiries about whether the company was interested in obtaining a stablecoin license in Hong Kong, but said it was “constantly in discussions with regulators globally on stablecoin regulatory developments.”
How firm is its stance?
There is a possibility that the HKMA will relax its stance as Hong Kong strives to welcome talent and maintain its status as an international financial center.
The HKMA's main focus is to ensure the stability of Hong Kong's financial system, but it also has another role in promoting the economy.
Crypto firms are not the only ones involved in the consultations. Not surprisingly, both traditional and virtual banks, which have been scrambling to sign up retail clients, as well as businesses involved in cross-border trade payments, have fed back to regulators.
Ken Lo, chief strategy officer of HKbitEX, said there was also a question of “how stablecoins can be used to facilitate the next era of payments,” pointing to the strength of the city’s wholesale and commercial banking sectors.
Michael Wong, a partner at law firm Dechert, said that judging from previous discussions with the HKMA on the private equity fund regime, the regulator will take a business-friendly stance, "making it both good for the industry and also from an investor protection perspective."
Locally registered entity
“If they want to do something industry-friendly, they really shouldn’t require issuers to be incorporated in Hong Kong,” said Wong. He said registering as a non-Hong Kong company in Hong Kong is a simple registration.
Original link: https://www.coindesk.com/policy/2023/02/21/how-hong-kong-is-gearing-up-to-regulate-stablecoins/