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Hong Kong official plots rules for stablecoins, crypto OTC services

source-logo  blockworks.co 21 February 2024 16:29, UTC

Hong Kong Financial Services Secretary Christopher Hui reiterated that lawmakers intend to propose legislation on stablecoins and virtual asset over-the-counter (OTC) services.

Hui said that, as part of proposed legislation on OTC services, “virtual asset services providers may be required to be licensed by the Commissioner of Customs and Excise (CCE).”

The proposals would cover all OTC services “irrespective of whether the services are provided through a physical outlet and/or other platforms; providing powers for CCE to supervise the [anti-money laundering] conduct of licensees, and enforce the statutory and regulatory requirements under the new regime; and providing transitional arrangement to facilitate the effective implementation of the regulatory regime.”

Separately, some stablecoin issuers — depending on criteria — would be required to register with the Hong Kong Monetary Authority under a different regulatory proposal. The proposal, made in December of last year, is open for public consultation until Feb. 29.

“The proposed regulatory regime will also prohibit the advertising of unlicensed issuers’ stablecoin issuance,” Hui said.

The HKMA said last year that the regulations were meant to encourage virtual asset innovations “in a sustainable manner, while actual and potential risks from the perspectives of monetary and financial stability, consumer protection as well as money laundering and terrorist financing, can be identified and properly addressed.”

Read more: Hong Kong releases crypto ETF requirements ahead of US approval

Hui’s clarity on potential crypto regulation came after receiving a written question on where Hong Kong stands regarding crypto trading regulations.

“The Government and regulators are committed to enhancing the VA regulatory framework, including the introduction of suitable licensing regimes to ensure that service providers concerned comply with the requirements on AML/CTF and investor protection,” Hui said.

Earlier this week, the HKMA issued guidance to firms offering digital asset custodial services.

The guidance includes allocating resources, segregating the client’s digital assets and safeguarding those assets.

Hong Kong is working to establish itself as a crypto hub, while also ensuring that investors are protected without repeating the FTX or Terra collapses. FTX collapsed in November of 2022, while Terra’s algorithmic stablecoin depegged in the summer of 2022. Both had crippling effects on the crypto industry, which is just now beginning to show signs of a potential bull market.