HK Outlines Regulatory System for Virtual Asset Sector

The Hong Kong government is working to establish a regulatory system for the virtual asset industry, Treasury and Financial Services Secretary Christopher Hui Ching-yu wrote on his blog.

in a lyrics For the forerunners of the virtual asset industry, Hui said key measures include a licensing regime for virtual asset service providers, including regulation of payment-related stablecoins. Also, provide traditional financial institutions with guidelines for offering services related to virtual assets to clients.

The government and financial regulators implemented these measures to build a systematic development and operation of the virtual asset sector and entry money laundering risks, he said. In addition, these measures aim to “build confidence in the market and thus provide a path towards its sustainable development.”

Following the new requirement introduced by the Financial Action Task Force, the licensing regime for virtual asset service providers will be established as a regulatory measure, it said. Therefore, virtual asset exchanges will need to apply for a license from the Securities and Futures Commission (SFC) before providing services in the city under the proposed licensing regime.

Both exchange-type virtual assets and non-exchange-exchange virtual assets such as Bitcoin are subject to the licensing regime.

Hui noted that these regulatory actions are being taken to create a fair balance in requirements and obligations between assets and traditional financial institutions in areas such as the fight against money laundering and the financing of terrorism, as well as the protection of investors.

Due to the technology-driven nature of virtual asset trading, requirements will also be imposed to address potential risks such as system failures and cybersecurity, it added.

HK Stablecoin Regulatory Regime

According to Hui, plans are still under construction to introduce a regulatory regime for stablecoins.

“We are also contemplating the need to introduce another regulatory regime for ‘stablecoins’ as the nature of this particular type of virtual asset makes it more likely to be used for payment purposes and therefore may present different risks. to those associated with other virtual assets, such as whether there is a robust mechanism to support their value or the impact on real economic activities in the event of interruption of their payment function”.

The blog also highlighted that financial regulators had issued guidelines and regulatory advice on matters related to virtual assets.

A circular issued by the SFC and the Hong Kong Monetary Authority in January 2022 has established regulatory guidelines that traditional banks and financial intermediaries must follow when distributing virtual asset-related products, providing virtual asset trading services and providing advisory services. of virtual assets to customers. .

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