Hong Kong will introduce a mandatory licensing regime for stablecoin issuers as early as this year, and won’t allow algorithmic stablecoins, the Hong Kong Monetary Authority (HKMA) said on Tuesday.
See related story: Hong Kong crypto exchanges to follow same laws as traditional finance
- The HKMA, the city’s de facto central bank, issued a consultation conclusion after receiving feedback on its 2022 discussion paper on crypto assets and stablecoins.
- The city’s financial regulator said in the report that the proposed regime will come in the form of new legislation or as amendments to existing laws, and has set a target implementation date of “2023/24.” The HKMA said that it would prioritize regulating stablecoins that “purport reference to fiat currencies.”
- The HKMA added that stablecoin issuers must maintain enough reserves to meet the value of circulating stablecoin at all times.
- Stablecoins have been under regulatory scrutiny since TerraUSD, an algorithmic stablecoin that was pegged to the U.S. dollar through its sister cryptocurrency Luna (now Luna Classic), lost its parity to the greenback last May, causing a multibillion-dollar collapse.
- HKMA said it will not allow algorithmic stablecoins.
- “Stablecoins that derive their value based on arbitrage or algorithm will not be accepted,” the report said.
See related story: Terra, UST collapse pushes G-7 call for swift crypto regulation