Hong Kong Regulators Unveils New Rules on Crypto and Stablecoins

On June 1, the Hong Kong regulators issued a Virtual Asset Trading Platform (VATP) handbook. The handbook outlined rules to support the country in establishing the crypto hub.

It was reported that the Securities and Futures Commission (SFC) drafted the handbook outlining the regulatory procedures the local and foreign crypto firms should follow to acquire the license.

A subsequent report on Wu Blockchain, a translation and publication firm, provided a synthesized explanation of the handbook guideline. The document was written by Gilbert Ng, a Hong Kong High Court lawyer, in collaboration with Chris Lee, the founder of TKZ Capital.

Review of Hong Kong New Crypto Regulations

Lee and Ng stated that the transitional agreement would allow crypto firms to operate without a license in Hong Kong for one year. Afterward, the regulators will review whether the crypto firms are satisfied with the regulation on the checklist boxes.

Lee and Ng stated that if the check boxes received positive feedback, the crypto firms could apply for the Hong Kong license in 2024. However, all the crypto firms willing to operate in the region must comply with the SFC requirements. The SFC will conduct a thorough background check to assess whether the crypto firm’s operations are genuine.

The SFC will only examine the business practices of non-securities exchanges. Under the SFC requirement, all crypto firms should be based in Hong Kong. Also, the crypto firm should have a physical office in Hong Kong that will control the operation of the trading platform.

According to the handbook, the virtual assets service providers in Hong Kong will be entitled to new roles and duties. The new rule requires crypto firms to be more responsible in their business practices.

The handbook outlines the role of a “regulated individual” who comprises directors, managers, and other top executives. The “regulated individual” will undergo a fit and proper examination.

This test requires the individual to demonstrate that he has relevant experience to work for a regulated platform. The regulated individual must demonstrate professionalism and competence even if the academic credentials are from overseas.

Procedures for Regulating Crypto Assets in Hong Kong

Additionally, crypto firms promoting digital assets must seek regulatory approval to operate in Hong Kong. At times, the crypto firm will be required to provide the SFC official marketing plans.

The handbook mentioned that crypto adverts in the retail sector and any transaction completed using the Hong Kong currency would require the company to formulate a marketing plan to uphold compliance.

The handbook illustrated that SFC and other regulatory agencies in Hong Kong would create a responsible crypto sector with the new rules. Last year the Hong Kong regulators were not that keen on the performance of crypto firms.

Meanwhile, the  Hong Kong Monetary Authority (HKMA) has prioritized formulating the regulation on stablecoins. Joseph Chan, an official at the HKMA, confirmed that regulators are seeking valuable inputs from the public concerning the issuing of the stablecoins. Chan stated that the HKMA anticipates launching the regulatory framework for stablecoin in the next year.

Scope of New Stablecoin Regulation

In January last year, the HKMA issued a report concerning regulating cryptos and stablecoins. After revising the HKMA 2022 report, the regulators revealed plans to adopt a risk-based approach when regulating crypto firms.

The HKMA officials were reportedly formulating regulatory standards and recommendations for stablecoins regulated under the financial stability board (FSB). Over the past, the FSB has been labeled as the de facto leader in crypto regulation.

Surprisingly, the public and private sector has been seeking FSB advice on financial tools and Web3. Per the HKMA report, the regulators proposed on ways to use stablecoins as a payment method.

In their report, the HKMA plans to expedite the development of stablecoins regulations to address the financial stability risk. They added that all regulated stablecoins must be pegged to assets with high liquidity.

The HKMA stated that the holders of digital assets could withdraw their stablecoin into fiat currencies within the specified time.

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