The Hong Kong Monetary Authority (HKMA), Hong Kong’s central bank, aims to supervise stablecoin issuance and reserves management. HKMA is inviting global stablecoin operators to respond to its already proposed rules. The bank published a discussion paper on January 12 about cryptos and stablecoins, where it offered its thoughts on how the sector needs to be regulated.
In the 34-page long consultation document, the HKMA paid some special attention to “payment-related stablecoins,” stating that the market capitalization of all the stablecoins reached $150 billion in December, which accounted for around 5% of the whole crypto market.
The regulator also said that all the existing stablecoins are mainly asset-linked and predominantly pegged to the US dollar, including the stablecoins like USD Coin (USDC) and Tether (USDT). HKMA stated:
Buy Crypto Now
“The rapid development of crypto-assets, particularly stablecoins, is a topic of keen attention in the international regulatory community as it presents possible risks regarding monetary and financial stability.”
HKMA Aims To Mitigate Stablecoin Risks
To effectively manage to handle the associated risks, HKMA set up eight major policy directions, proposing to become the only regulator to supervise entities that are involved in regulating and running operations like issuing stablecoins and managing all their reserves. The watchdog also aims to regulate stablecoin transactions’ authentication processes, executing transactions, and private key storage management.
“We encourage current or prospective players in the stablecoins ecosystem to respond to this paper and submit relevant views to us, so that we could take the feedback into account when formulating the regulatory framework.”
This regulator now expects to finalize its next steps as soon as possible and then introduce new regulations by 2023 or early 2024.
HKMA is currently not the only financial regulator that is worried about stablecoin risks and planning some steps to regulate the thriving sector. In November last year, the United States President’s Working Group on Financial Markets published an extensive report on possible ‘payment system risks’ and ‘stablecoin runs.’ The United States Treasury subsequently hinted at new stablecoin-focused laws in December 2021.