Hong Kong Prohibits Stablecoin Trading – The Securities and Futures Commission (SFC) in Hong Kong has warned licensed platforms against providing interest-bearing or lending services to local users.
The SFC clearly stated that individual investors will be prohibited from trading stablecoins until new regulations for these digital assets are made. Hong Kong’s SFC claims in its Consultation Paper Requirements for Virtual Asset Trading Platform that it is necessary to look at the risks and regulations involving stablecoins.
According to the SFC, the reason for this is based on the need to make sure that stablecoin reserves are managed properly to ensure price stability. Furthermore, it added that there might be “fundamental implications” if the risks are not properly managed.
The regulator referred to a discussion paper on stablecoins published by the Hong Kong Monetary Authority (HKMA) that called for the licensing of stablecoin issuers and limited the development of algorithmic stablecoins.
“A stablecoin which is unable to maintain its peg or return an investor’s funds upon redemption cannot be said to be stable. In addition, heightened vulnerability to runs greatly affects their liquidity and renders them generally unsuitable for retail investors.”
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In the meantime, The Securities and Futures Commission (SFC) pointed out that before the end of the year, there will be a new regulatory regime implemented for stablecoins.
Investors can trade non-security tokens
Even though retail investors are not allowed to trade stablecoins, the Commission has given permission to licensed trading platform operators to provide non-security tokens with good records over the past 12 months to retail investors.
According to the SFC, it will put in place strong measures to protect investors. These measures will enable the industry to develop in a way that can be maintained and also support innovations.
“Hong Kong’s comprehensive virtual assets regulatory framework follows the principle of ‘same business, same risks, same rules’ and aims to provide robust investor protection and manage key risks. This will enable the industry to develop sustainably and support innovation,” SFC CEO Julia Leung said.
Furthermore, SFC-licensed trading platforms are not allowed to provide earning, deposit-taking, lending, and borrowing services. Also, these trading platforms are not allowed to provide algorithmic trading services to clients.
Finally, the SFC warns licensed platforms to hold most customers’ assets in cold storage to reduce cybersecurity risks including hacking.