The Crypto Council for Innovation (CCI) submitted a comment on the proposed stablecoin regulatory regime in Hong Kong on the last day of the comment period. The advocacy group’s five-page letter contained substantial criticism of the proposed reserve and operational requirements and mounted a lively defense of algorithmic stablecoins, which Hong Kong authorities had taken a dim view of.
The Hong Kong Monetary Authority (HKMA) and Financial Services and the Treasury Bureau (FSTB) released a consultation paper on Dec. 27 outlining a regulatory framework that foresaw licensing stablecoin issuers with certain requirements. These included having an office in Hong Kong with senior management present and reserves “at least equal to the par value.”
“We applaud FSTB and HKMA for taking important first steps in crafting a regulatory regime,” the CCI wrote. Nonetheless, it saw potential problems ahead. Reserve requirements could be an “outsized burden” if they duplicate requirements in other countries, the CCI wrote, and emphasized the challenge of ensuring a physical presence of senior management and key personnel in Hong Kong due to the global nature of many crypto asset businesses.
The CCI suggested a risk-based approach to reserve requirements and recommended an “equivalence framework” harmonized with other jurisdictions. This would allow issuers to operate in Hong Kong similarly to Japan, where licenses from other countries are recognized after review.
A significant portion of the CCI’s letter discussed algorithmic stablecoins. The proposal would treat all stablecoins equally, it claimed, making it unlikely for algorithmic stablecoin issuers to meet the proposed licensing criteria. Despite past issues, the CCI was bullish on algorithmic stablecoins, highlighting their importance and potential benefits.
The CCI also advocated for stablecoins tied to cryptocurrencies like Dai, RAI, and LUSD, pointing out their resilience during market downturns. These stablecoins, backed by assets like Bitcoin and Ether, demonstrated stability amidst recent market fluctuations, according to the CCI.
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