Bitcoin coins on Hongkong's Flag

Hong Kong stablecoin trading for retail investors barred until regulatory framework launch

Hong Kong’s retail investors will not be allowed to trade stablecoins on exchanges till 2024, pending the launch of a framework to regulate their issuance and use.

Hong Kong’s Secretary for Financial Services and the Treasury Christian Hui said the ban seeks to protect investors from grave risks associated with stablecoins. Hui pointed to the 2022 collapse of TerraUSD (UST) and volatility issues affecting other stablecoins as reasons for a retail trading ban against stablecoins.

Hui added that concerns over the reserves of stablecoin issuers may leave investors unable to redeem their holdings in the event of a black swan event. In the face of glaring risks to investors’ safety, Hui added that Hong Kong’s residents will be allowed to dabble with stablecoins on exchanges following the rolling out of a comprehensive legal framework.

Hong Kong has been moving forward with plans for a stablecoin rulebook since the start of the year but appears to have adopted a slow-and-steady approach. In early 2023, the Hong Kong Monetary Authority (HKMA) published its recommendations for a “risk-based approach,” but advances have been punctuated by two rounds of public consultations.

Despite the seemingly slow pace of the stablecoin efforts, the HKMA says a launch date in 2024 is feasible but squashed theories that it will support the launch of algorithmic stablecoins.

“We are currently conducting the second round of consultation,” said Chui in a speech at the 2023 Shanghai Blockchain Week. “We hope that by the middle of next year, Hong Kong can announce the regulatory conditions for stablecoins, allowing stablecoin participants to issue stablecoins in Hong Kong.”

The warning against retail stablecoin trading follows Hong Kong’s Securities and Futures Commission (SFC) enforcement action against JPEX, an unregistered cryptocurrency exchange. After investors reported losses of up to $200 million, the HKMA waded in to impose new rules banning digital currency service providers from using terminologies like “deposits” and “savings plans.”

“These descriptions may mislead members of the public into believing that those crypto firms are banks authorized in Hong Kong, to which they can entrust their savings,” said the HKMA.

Retail traders basking in the warmth of new wins

After months in limbo, Hong Kong lifted the ban for retail investors to begin trading digital currencies on approved exchanges. The SFC noted that the approved digital assets would be those with large market capitalizations like BTC and Ethereum (ETH), barring the offer of derivatives and stablecoins.

The approval follows plans to launch a new licensing regime for digital currency service providers in the region, with the SFC issuing licensing to a handful of firms so far.

“Operators of virtual asset trading platforms who are prepared to comply with the SFC’s standards are welcome to apply for a license,” said the SFC. “Those who do not plan to do so should proceed to an orderly closure of their business in Hong Kong.”

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