Hong Kong warns against fraud as stablecoin law takes effect

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Hong Kong authorities are warning against a rise in fraud related to stablecoins as new regulations came into force this month.

The city’s landmark Stablecoin Ordinance took effect on August 1, introducing new laws for the burgeoning sector with guidelines on issuance, redemption, and custody. While the new laws have greatly boosted investor protection, an official from the Securities and Futures Commission (SFC) says they have also inadvertently increased the risk of scams and other forms of fraud.

Ye Zhiheng, who heads the intermediary’s department at the watchdog, stated that dozens of Hong Kong companies were slapping ‘stablecoin’ on their brands to attract investment and boost their valuations without any real products.

He warned investors against making ‘irrational investment decisions’ as the market hype surges.

Ye’s warning came just days after the SFC and the central bank issued a joint statement urging caution amid “abrupt market movements linked to the stablecoin concept.” They claimed that the hype around companies exploring stablecoin issuance was unsustainable and called on investors to conduct research before being roped into any investment.

“In addition to conducting thorough research themselves, they should always be mindful of the misleading prospects of gains from short-term price volatility and be wary of unsubstantiated claims, particularly those appearing on social media,” SFC CEO Julia Leung stated.

Meanwhile, Hong Kong Monetary Authority (HKMA) Chief Executive Eddie Yue emphasized that the central bank has heightened its review process on who can get a license to issue stablecoins, making the approval highly selective with only a few permits expected to be granted.

“We have been in preliminary communication with dozens of parties regarding stablecoin licensing as part of our market engagement. Such communication, or the related indication of interest or application, is not an indicator of approval or endorsement of any entity’s prospects,” he said.

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