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Hong Kong’s banking supervisor has officially launched a regulatory sandbox for stablecoin publishers – another sign of Hong Kong appearing as a hub for well-regulated crypto activity.
On March 12, the Hong Kong Monetary Authority (HKMA) announced the launch Stablecoin sandboxwhich follows plans to create a regulatory framework for stablecoin issuers which is expected to take effect from the end of 2024. According to the HKMA website, the sandbox “enables the HKMA to communicate supervisory expectations and compliance guidelines to parties with a genuine interest in issuing fiat-referenced stablecoins in Hong Kong, as well as to obtain their feedback on proposed regulatory requirements”. Applicants applying for the sandbox will be evaluated against three criteria:
- must demonstrate a reasonable plan to issue fiat-referenced stablecoins in Hong Kong;
- must demonstrate a plan to participate in the sandbox;
- and must demonstrate how they will comply with the proposed regulatory requirements.
Once selected, participants will be able to run their stablecoin project under the supervision of the HKMA, but with strict controls. For example, the HKMA will limit the size of stablecoin issuance and the number of users who can receive a particular stablecoin.
The HKMA plans to use the sandbox to obtain feedback from participants on the proposed regulatory requirements for stablecoin issuers, ensuring that the full regulatory regime, once introduced, is fit for purpose. Those proposed regulatory requirements include obligations for stablecoin issuers to ensure that they maintain adequate reserves, respect the rights of owners, and comply with anti-money laundering and countering the financing of terrorism (AML/CFT), among other things. The HKMA’s public hearing on these proposed rules ended on February 29 and received more than 100 responses from participants in the crypto and financial services industry. In addition to these responses, the sandbox will also allow the HKMA to receive and assess the appropriateness of its proposed rules.
To learn more about the development of crypto regulation in Hong Kong, watch our recent webinar on Ambitions of Hong Kong’s crypto hub.
Thailand allows investments in US Bitcoin ETFs
Institutional investors in Thailand will now be allowed to invest in the recently approved US Flow Bitcoin Exchange Traded Funds (ETFs). March 12 Bangkok Post registered that Thailand’s Securities and Exchange Commission (SEC) has indicated that US Bitcoin ETFs are suitable products for institutional investors to include in their portfolios. The changes also allow ultra-high-net-worth individuals to access US Bitcoin ETFs, but asset management companies and retail investors will not be able to access US Bitcoin ETFs. Thailand’s SEC has indicated that it will undertake further review of whether to allow asset managers and others to trade US Bitcoin ETFs.
As we are wrote earlier this year, the US Securities and Exchange Commission’s approval of Bitcoin ETFs in January could open the door to a wave of institutional investor interest in cryptocurrencies. The Thai SEC’s willingness to allow institutional investors access to US Bitcoin ETFs is indicative global demand for this new asset class.
UK regulator to allow cryptocurrencies for institutional traders
In a further boost to institutional investors seeking exposure to crypto markets, on March 11 the UK’s Financial Conduct Authority indicated that it will not oppose attempts by regulated institutional traders to create a marketplace for cryptocurrencies (cETNs) – a type of financial product similar to ETFs.
Under the FCA, cETNs can be made available and traded in the UK, but only among professional dealers, such as investment firms and credit institutions, who must ensure that all cETNs they offer comply with UK regulations. Firms wishing to list cETNs must obtain approval from the FCA on a case-by-case basis, and must ensure that they have appropriate controls in place and have assessed whether offering such products is within their risk appetite.
The FCA’s willingness to consider cETN applications shows that it recognizes the growing demand among institutional investors for these products and believes that there is now sufficient market data to enable institutional investors to make informed decisions about whether to trade these products. The FCA, however, was careful to note in its statement that cETNs and all related derivatives cannot be offered to retail traders given the high-risk nature of crypto-asset trading.
NFT markets may be covered by future UK money laundering changes
The UK is also considering changes to its BPPN/BPFT regime that could see providers of non-fungible token (NFT) trading venues sweep the regulatory perimeter. U consultation document issued on March 11, the UK Treasury indicated that NFTs present financial crime risks that are not currently covered by existing AML/CFT requirements for crypto firms.
Under the UK’s existing AML/CFT measures, crypto firms such as custodians and exchanges must seek approval from the FCA before offering services in the UK. Under proposed changes put forward by the UK last year, some crypto firms will also have to seek approval under rules for financial services firms. However, none of these provisions shall apply to services such as NFT markets that deal solely with NFT. According to the latest consultation, HM Treasury believes that NFT dealers should be covered by AML/CFT requirements given the financial crime risks they pose.
HM Treasury’s consultation runs until 9 June.
CFTC Chair Urges Congress to Provide Crypto Guardrails
One of America’s top regulatory chiefs has called on Congress to urgently fill key gaps in crypto market oversight.
On March 6, Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam appeared before the US House Agriculture Committee and argued that Congress must ensure oversight of crypto spot markets, which are currently unregulated in the US. Specifically, Behnam urged Congress to pass the Financial Innovation and Technology for the 21st Century Act, which passed the Committee last year but never advanced to a full vote in the US Congress. The bill, if passed, would give the CFTC oversight of spot markets for Bitcoin — something Behnam argued the Agriculture Committee needed to avoid a repeat the collapse of the crypto exchange FTX.
However, as we noted in our 2024 Regulatory Outlook Seriesit remains unlikely that the US Congress will pass meaningful legislation this year that could help bring greater regulatory clarity to the US crypto market.
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