The U.S. is currently working on stablecoin market regulations, introducing three drafts of the bill by the first week of June.
The Hong Kong Monetary Authority (HKMA) has completed a public consultation on stablecoin regulations and aims to introduce clear regulatory guidelines for the stablecoin market by the end of 2024.
Joseph Chan Ho-Lim, Under Secretary for Financial Services and the Treasury of the government of Hong Kong, said that over the past five years, Hong Kong has emerged as a growing destination for fintech firms. Chan added that authorities are actively working to promote the Web3 ecosystem with a focus on investor protection.
Hong Kong started discussions on its stablecoin regulations in January 2022, with the HKMA sharing a list of eight questions about policy-related recommendations and citing five possible regulatory outcomes: 1) no action; 2) an opt-in regime; 3) a risk-based regime; 4) a catch-all regime; and 5) a blanket ban. In January 2023, the outcome of regulatory discussions outright prohibited the incorporation of algorithmic stablecoins in its stablecoin framework, with the HKMA demanding all stablecoin issuers back up their values with underlying reserve assets at all times.
With the completion of the public consultation phase, the HKMA will focus on issuance, governance and stabilization.
Hong Kong has taken the crypto regulatory lead in 2023, at a time when most of its Western counterparts are still taking a cautious approach to the nascent sector. The HKMA has not only opened crypto trading for retail traders but also started a licensing regime for crypto exchanges requiring that they adhere to strict Anti-Money Laundering regulations.
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Aside from Hong Kong, the United States House Financial Services Committee is also looking to introduce regulations for the stablecoin market. The committee has introduced three draft stablecoin bills in 2023, with the latest proposing key powers to the Federal Reserve and some capacity for state authorities to intervene.
The approach of local regulators in the two countries couldn’t be more different. On the one hand, Hong Kong regulators are actively seeking to make the country a crypto hub, whereas, on the other hand, the actions of U.S. regulators might force many established businesses to move out of the country, including stablecoin issuers. The U.S. Securities and Exchange Commission has accused several stablecoin issuers of violating securities laws, even taking action against the issuer of Binance USD (BUSD), Paxos Trust.
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