Hong Kong regulator to require licensing for stablecoin issuers

The Hong Kong Monetary Authority (HKMA) during 2023-2024will introduce mandatory licensing for issuers «stablecoins». The initiative aligns with feedback received on the regulator’s powers changes.

The HKMA will prohibit the use of algorithmic stablecoins such as TerraUSD (UST), which sparked turmoil in the crypto markets in the spring of 2022 with far-reaching consequences.

The regulator plans to oversee the management, issuance and custody of fiat-backed tokens.

“The value of reserve assets must always correspond to the value of the circulating ‘stablecoins’. The backing must be of high quality and liquidity,” — according to the press release.

In developing concrete regulatory mechanisms, the HKMA will take into account feedback received, recent market changes and international experience.

In the UK, amendments to the Financial Services and Markets Bill have been laid before Parliament. The provisions include, among other things, stablecoins.

According to media reports, the proposed U.S. Congress bill to regulate ‘stablecoins’ would impose a two-year ban on new algorithmic stablecoins such as TerraUSD.

In Japan, after the collapse of TerraUSD (UST), a bill approved that bans listing of stablecoins issued outside Japan on domestic crypto exchanges.

In January FSAsaid it was ready to soften such norms for assets that will undergo ‘individual checks’ and guarantee consumer protection.

In the European Union, MiCAprovides for restrictions on the volume of ‘stablecoins’ with collateral not denominated in euros. The document also effectively bans algorithmic stablecoins.

The head of the Monetary Authority of Singapore, Tharman Shanmugaratnam, stressed that ‘stablecoins’ require separate regulation.

In October, the Financial Stability Board FSBconcluded that none of the existing stablecoins meet the standards set for central-bank digital currencies of the world’s largest economies.

Moody’s is developing a scoring system for ‘stablecoins’, according to media reports.

CryptoCompare noted a drop in the market share of algorithmic stablecoins from 12.4% in April 2022 to 1.71%. The collapse of TerraUSD was the cause.