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On 12 January 2022, the Hong Kong Monetary Authority (HKMA) released a discussion paper on crypto-assets and stablecoins, providing insight into the regulator’s views, priorities and proposals to expand Hong Kong’s regulatory framework.

Current regulatory regime in Hong Kong

The Securities and Futures Commission (SFC) in Hong Kong has been operating an opt-in regime for virtual asset (VA) service providers (VASPs) since November 2019. In December 2020, the SFC granted the first-ever cryptocurrency exchange platform license.

In May 2021, the Financial Services and the Treasury Bureau (FSTB) announced it had completed a public consultation on the VASP regime and would work towards an amendment bill in 2022. Cryptocurrency exchanges will likely continue to fall within the VASP regime as their activities are regulated.

The HKMA observed that the VASP regime is not primarily intended to regulate stablecoins, particularly those that function like stored value facilities (SVFs), which are currently subject to a mandatory licensing regime under the Payment Systems and Stored Value Facilities Ordinance (Cap. 584) (PSSVFO). Despite the PSSVFO, the HKMA considers that some stablecoins do not technically fit within the definition of an SVF, bringing about a regulatory ‘grey’ area. This may require the PSSVFO to be expanded or new legislation to be introduced.

The HKMA and the SFC intend to issue separate guidance to banks and other authorised institutions to protect Hong Kong investors in respect of crypto-asset related intermediary services.

In terms of global developments, the HKMA observed that different countries were at different stages in formulating their regulatory stance on crypto-assets. Hong Kong and Singapore tended to develop their regulations based upon existing regimes that cover a limited range of crypto-assets. Other countries, such as the United States and a number of EU member states, had more comprehensive plans to introduce new, bespoke legislation covering all types of crypto-assets.