The Hong Kong Monetary Authority has been reviewing the regulatory treatment of crypto assets locally. In particular, the central bank has placed emphasis on issues that may affect the public’s confidence in, and the safety, efficiency, and soundness of, payment systems, and accord appropriate priority to the protection of users.
It’s identified two key areas for deliberation at this stage, namely (i) the regulatory approaches regarding the Authorized Institutions (AIs) interface with and provision of intermediary services to customers related to crypto assets; and (ii) the adequacy of the existing regulatory framework in response to the challenges arising from the growing use of stablecoins and other types of crypto assets in financial markets.
The discussion paper mainly addresses issue (ii), in particular sets out the HKMA’s views on how to expand the regulatory framework for crypto assets. On stablecoins, it is generally considered as a sub-set of crypto assets, and has been a focus of discussion across international regulatory fora. Due to its “pegging” characteristic, users and/or market players may differentiate it from other types of crypto assets, with the perception or expectation that some stablecoins may be more readily developing into a commonly acceptable means to store value and/or make payments, thus having a higher potential for being incorporated into the mainstream financial system across the globe.
Going forward, there is also a need to monitor the growing interconnectedness between largely unregulated crypto assets with the mainstream financial system and the potential risks that a severe price correction in these assets could pose to the wider financial system.