Hong Kong is looking into introducing measures to restrict retail stablecoin trading for individual investors, as revealed by local official Hui Ching-yu. This comes in response to the increasing adoption of cryptocurrencies, as retail stablecoin trading is currently not allowed in the country.
Ming Pao, a local news agency, reported on October 6 that in a live interview on an investment committee program, Hui Ching-yu, Hong Kong’s Secretary for Financial Services and the Treasury, clarified that the city has yet to establish regulations governing the trading of stablecoins such as Tether (USDT) or USD Coin (USDC). Therefore, retail investors are currently prohibited from engaging in such trading activities.
Stablecoins, virtual currencies tied to the value of a fiat currency like the US dollar, are widely used by service providers as a trading asset to limit market volatility. However, some stablecoins have experienced significant fluctuations or even collapsed, such as the TerraUSD (UST) stablecoin collapse in May 2022. This highlights the critical role of reserve management in maintaining their price stability and ensuring investors’ rights to redeem fiat currencies.
Hui Ching-yu further stated that retail trading will be allowed in the country once the regulator looks into it and officially regulates stablecoins. He also referred to the ongoing JPEX fraud case, which is under investigation for fraudulent activities, as evidence of the need for supervision of crypto activities within the country.
In a separate live interview, Xu Zhengyu, another Secretary for Financial Services and the Treasury of the SAR government, highlighted the risks associated with unregulated cryptocurrency platforms. These platforms often lack transparency and may operate without stability or reliability. In the event of disputes or platform failures, investors may have limited recourse to recover their funds and could suffer major financial losses. As examples, he named the fall of FTX at the end of the previous year and the recent JPEX case in Hong Kong, emphasizing the real-world consequences of unregulated cryptocurrency platforms.
The JPEX case is particularly noteworthy. This Hong Kong crypto exchange suspended certain services in mid-September 2023 due to a liquidity crisis caused by “unfair treatment” from certain institutions in the country. After authorities received more than 2,000 complaints from JPEX users reporting nearly $180 million in losses, they launched an investigation. The police have since announced 18 arrests of suspects connected with the cryptocurrency exchange platform scandal.
Hong Kong’s efforts to regulate cryptocurrencies suggest that the city is striving to create a secure and reliable environment for crypto investors. The Hong Kong Monetary Authority is expected to publish regulatory guidelines for the stablecoin market by the end of 2024. Global attention is on cryptocurrency regulations and Hong Kong is no exception as its landscape continues to be a dynamic and challenging arena for both regulators and aspiring businesses.
