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As investors flock to cryptocurrencies and abandon traditional investment options, government authorities have had to develop a regulatory framework for the industry. The latest news in this regard comes from Hong Kong, where the country’s central bank, the Hong Kong Monetary Authority (HKMA), has submitted a questionnaire to the public to share their views on the regulatory setup. cryptocurrency and stablecoins. The prominent banking institution expects to publish important regulatory guidance in the virtual currency space by 2023-24.
The HKMA has release The questionnaire, titled “Discussion Paper on Cryptoassets and Stablecoins,” aims to kick-start its program, which focuses on enforcing regulatory control over the crypto industry. The document highlights the huge growth in the market cap of the stablecoin industry in the global financial sector since 2020. It also refers to corresponding regulatory recommendations from international financial regulators such as the US Financial Action Task Force (FATF), the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS).
The regulator has listed eight potential issues to seek advice on regulation. The document contains five possible regulatory outcomes. These outcomes are – inaction, opt-in systems, risk-based systems, catch-all systems and total bans. With this, banking institutions look forward to understanding the perspectives and expectations of investors who trade cryptocurrencies and stablecoins. Stakeholders have until March 31, 2022 to submit answers. The HKMA’s decision was widely supported by prominent figures in the country. Recently, Hong Kong’s largest real estate developer, Sun Hung Kai, invested $90 million in Sygnum, a Swiss bank known for trading digital assets.
The questionnaire may help experts draft a strong regulatory framework for the crypto space. Cryptocurrencies are often criticized for facilitating illicit activities such as money laundering because of the anonymity inherent in the use of cryptoassets. However, with a strong regulatory toolbox, the government can ensure that the industry is free of problems associated with the execution of illegal transactions. Regulators say stablecoins are more likely to enter mainstream financial markets and even be used for everyday transactions. The agency is planning to expand the scope of the Payment Systems and Stored Value Facilities Ordinance (PSSVFO). The law determines the legitimacy of the financial sector.
The continued surge in the size and volume of cryptocurrencies may not pose a threat to the stability of the global financial cluster from a systemic perspective, the governing body said. The discussion paper reflects that the expansion of the virtual asset class as an alternative solution to traditional instruments clearly demonstrates the interconnectedness with the core financial sector. The paper shows that the industry’s market cap is $150B in December 2021, representing nearly 5% of the entire crypto industry.
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