Hong Kong‘s de facto central bank invited comment on Wednesday about ways to regulate crypto assets and stablecoins, with the aim of adopting a regulatory framework by 2024 in which the policy spectrum could range from no action to a blanket ban.
The rapid growth of cryptocurrencies and, in particular, stablecoins, or digital assets pegged to traditional currencies, has drawn attention from regulators worldwide, who fear they could put the financial system at risk if not monitored.
The global market value of crypto assets stands at about $2.2 trillion, pointing to their growing inter-connectedness with the mainstream financial system, said Eddie Yue, the chief executive of the Hong Kong Monetary Authority (HKMA).
“We place emphasis on issues that may affect the public’s confidence in, and the safety, efficiency, and soundness of, our payment systems, and accord appropriate priority to the protection of users,” the HKMA said in a paper on the topic.
It is seeking feedback from the public and stakeholders by March 31, in a more wide-ranging effort than a recent exercise by the territory’s Securities and Futures Commission (SFC) that focused only on trading platforms for virtual assets.
In its paper, the HKMA focused on the wider implications of stablecoins that may be used in payments, along with aspects of investor protection relating to crypto assets, and regulated institutions’ interface with crypto assets.
It listed five possible choices for regulating crypto assets, ranging from no action to a blanket ban.
Regulated institutions are required to “critically evaluate” their exposures to different types of risks and adopt risk-mitigation measures before setting up ties with providers of crypto asset services, the paper added.
The consultation comes against the backdrop of concerns among policymakers worldwide that crypto assets could be used for illicit purposes, or to take advantage of unsuspecting consumers.
Such worries stem from the complexity and volatility of cryptocurrencies, as well as wildly varying standards around aspects of disclosure, reserves and consumer protection.