The crypto industry is bracing itself for more regulations following the collapse of FTX, hacking and scams and the unabating popularity of the new world of money. The UK has indicated that it wants to be seen as a hub of innovation when it comes to cryptocurrencies and blockchain, and is expected to work out new regulations within a year for which it is accepting feedback and advice.
Stable coins, which are backed by other assets and maintain a more or less fixed price, are supposed to be the next in line for regulation following the TerraUSD collapse. Hong Kong has indicated that it will work out a framework by this or next year to regulate stable coins and is seeking consultations for the same. Singapore had recently shared some proposals for a similar regulatory framework that will require full backing and redemption of stable coins. Hong Kong currently lacks a clear set of licensing rules for stable coins.
The nature of stable coins, like that of Bitcoin, also remains dubious. An official from SEC had pointed to how a stable coin could be considered not a coin but similar to a money fund since it is backed by a mixture of assets, including fiat like dollar, precious metals and even other cryptocurrencies.
The US SEC has made clear intentions to regulate crypto exchanges with existing regulations, inviting advice on the definition of an exchange and how it could bring Defi exchanges too under its ambit.
Stable coins are also seen as a threat due to their disruptive nature, and the deputy governor of Bank of England has indicated similar views at the Innovate Finance Global Summit. The idea is to balance the innovative nature of these assets with their accompanying risk, thus requiring the placement of limits. Some of the popular stable coins are USDT or Tether, USDC by Circle, and BUSD by Binance.
Crypto regulations are part of the currently in-process Financial Services and Markets Bill in the UK. Stable coins are thus expected to become part of the regulations. The UK leadership under Sunak is crypto friendly, with a vision to create a “crypto hub” in Britain.
Regulation of stable coins will require licensed operators and services to comply with norms and rules for ownership, risk, AML, user protections, audits, management, proper disclosures, etc. The business need not be located in Hong Kong, and these regulations will cover any stable coin with HKD as the reference or pegged fiat currency.
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