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Regulator Shows Interest as Hong Kong’s Crypto Adoption Grows

Hong Kong’s financial regulator, the Hong Kong Monetary Authority (HKMA), has acknowledged that crypto assets are having a “rising interconnectedness” with the mainstream financial system including banks and other types of financial institutions.

The Special Administrative Region (SAR) of the People’s Republic of China is a fairly crypto-active jurisdiction. However, based on the significant growth in the market capitalisation of crypto assets that the HKMA says it has witnessed and the increasing investment in and/or usage by institutional or even retail players, it suggests there is a growing adoption and ongoing evolution of crypto-assets in Hong Kong. It notes that there is growing interest of banks and their customers in exploring opportunities in investing in crypto assets.

The regulator made the disclosure in its latest discussion paper on crypto assets and stablecoins. In line with this acceptance, the document states that they have been “reviewing the regulatory treatment of crypto assets locally” and the HKMA has identified two key areas for deliberation at this point hinged on regulation. “Going forward, there is also a need to monitor the growing interconnectedness between these largely unregulated crypto assets with the mainstream financial system and the potential risks that a severe price correction in these assets could pose to the wider financial system,” a part of the discussion paper says. 

It adds that in discharging its functions of maintaining monetary, financial and banking stability of Hong Kong, “we will continue to monitor the development of crypto assets closely and maintain a close dialogue with other stakeholders in the HKSAR Government and other financial regulators as well as the relevant international standard-setting bodies on the need to expand the regulation of such assets as needed in light of relevant international regulatory developments.”

For stablecoins, which its says are used either for investment or payment purposes and often advertised as being “pegged to” fiat currencies and/or other assets, the perception or expectation of them being more readily widely acceptable as means of payment and/or store of value in the mainstream financial system is higher. As a result, the regulator adds that they are in tune with the the Financial Stability Board’s encouragement to be prepared for regulation of stablecoins particularly those with potential for wider application for payments across jurisdictions.

The HKMA’s acceptance comes as multinational financial services corporation, Visa, finds in a survey of nine countries that Hong Kong is among countries where more than a third (30%) of small business merchants plan to offer customers the option to pay for services and products using crypto in the coming months. Others with a 30% response are the United Arab Emirates, Singapore and Brazil. The report stresses the extent to which digital currencies have gained ground in the four countries more than the other five countries – e.g. US (19%) and Canada (8%). The other countries in the survey of 2,250 small business owners include Germany, Ireland and Russia.

Another development of interest is the news that Hong Kong-based crypto start-up Amber Group has acquired Japanese-licensed cryptocurrency trading firm Decurret which is a platform for the exchange of various digital currencies. The Amber Group, which also operates its cryptocurrency trading services for individuals and institutional investors in Taipei and Vancouver, raised $100 million from investors mid last year in a funding round that helped value the start-up at $1 billion.

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