HKMA Stablecoin Regulation Proposal
The HKMA Stablecoin Licensing Proposal aims to regulate stablecoins based on regulated activities, including issuance, stabilization and wallet...
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In June, 2022, the government proposed legislation to regulate virtual asset service providers (“VASPs”) and to combat fraud and deceptive practices in transactions of “virtual assets”.
Proposed new legislation will fill gaps in regulation as digital assets may fall outside existing securities and futures laws. Together, the new law and existing laws will provide greater regulatory coverage of the industry.
Existing laws regulate “securities” and “futures contracts”. Digital assets in the form of “securities” can be created or adopted to opt-into existing regulation. Proposed new law will regulate “virtual assets” including digital assets that constitute neither “securities” nor “futures contracts”.
Any VASP already licensed under the opt-in regime will be exempted from the new VASP licensing requirement. Regulation under the opt-in regime and the proposed new licensing regime are intended to be consistent with both administered by the Securities and Futures Commission (“SFC”).
Consistency of regulation under new VASP licensing regime and existing opt-in securities regime suggests little room for dealing with investors other than professional investors where either regime applies.
Existing securities regime covers:
“Securities” includes shares or debentures; rights, options or warrants in respect of any share or debenture; interests in collective investment scheme; other interests commonly known as securities
“Securities” may include an agreement the (actual or pretended) purpose or effect of which is to provide (conditionally or unconditionally) to any party a profit or other returns calculated by reference to changes in the value of any property
“Securities” may include instruments under which some or all of the return or the method of settlement is determined by reference to:
Virtual asset regulation will apply to “virtual assets”, meaning assets which meet 3 criteria:
A unit of account or store of value should meet the following criteria:
A virtual asset must be able to be transferred, stored or traded electronically.
A virtual asset is a medium of exchange if it functions (or is intended to function) as a means accepted by the public for the payment for goods or services or for the discharge of a debt, or for investment purposes.
A virtual asset has voting rights if it offers a vote on the management, administration or governance of the affairs in connection with, or a vote on any change of the terms of any arrangement applicable to, any cryptographically secured digital representation of value.
Regardless of the legal definition
Licensing requirements apply to “virtual asset service” providers:
The proposed new regime is expected to come into effect on March 1, 2023. Under transitional arrangements, pre-existing business may continue without being granted a license in the 1st year of the regime and thereafter, if they apply by November 30, 2023 to the SFC for a license, they may continue unless and until the SFC refuses the licensing application or the application is withdrawn.
Mirroring securities legislation, the proposed new legislation will create an offence for fraudulently or recklessly inducing others to invest in virtual assets and an offence for use of fraudulent or deceptive devices in transactions in virtual assets
The HKMA Stablecoin Licensing Proposal aims to regulate stablecoins based on regulated activities, including issuance, stabilization and wallet...
Hong Kong proposes a new virtual asset service provider (VASP) licensing regime.
SFC proposes new risk management guidelines for dealings in futures contracts
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