Stablecoins make up 5% of the overall crypto market
The Hong Kong Monetary Authority (HKMA) has released a questionnaire raising eight policy-based issues to receive recommendations on crypto and stablecoin regulation.
With the intention to establish a comprehensive regulatory framework by 2024, the central banking institution of Hong Kong stressed challenges brought forward by the massive growth of the stablecoin industry in the document titled “Discussion Paper on Crypto-assets and Stable coins.”
The paper discussed the regulatory recommendations provided by other international regulators including the United States’ Financial Action Task Force (FATF), the Financial Stability Board (FSB) and The Basel Committee on Banking Supervision (BCBS).
HKMA concluded that while presently the crypto-asset economy was not large enough to systemically threaten global financial stability, this can soon change:
“The growing exposure of institutional investors to such assets as an alternative to or to complement traditional asset classes for trading, lending and borrowing […] indicate growing interconnectedness with the mainstream financial system.”
The report also discussed the market capitalisation of major stable coins in detail, highlighting that as of December 2021, stable coins represented 5% of the overall crypto market with a global market cap of $150 billion.
The state-backed regulator further presented that payment-related stablecoins can have crucial utility when incorporated into the mainstream financial system or even day-to-day commercial and economic activities.
Thus, the HKMA will be considering the expansion of the Payment Systems and Stored Value Facilities Ordinance (PSSVFO), a law that determines the legality of financial products, the report stated.
The regulator detailed five possible outcomes to deal with stablecoins – no action, opt-in regime, risk-based regime, catch-all regime and blanket ban. A decision will be made considering the policy recommendations on the questionnaire, among other factors. Stakeholders are expected to submit their responses by the 31st of March 2022.