Hong Kong is considering measures to restrict retail trading of stablecoins for individual investors in response to the growing adoption of cryptocurrencies, a local official said. It is important to note that retail trading of stablecoins is currently not permitted in Hong Kong.
As reported by local news agency, Ming Pao, on October 6, in a live interview on an investment committee program, Hui Ching-yu, the Secretary of Financial Services and Treasury in Hong Kong, clarified that the city has not yet established regulations governing the trading of stablecoins such as Tether (USDT) or USD Coin (USDC). Consequently, retail investors are currently prohibited from engaging in such commercial activities within the country.
Stablecoins, which are cryptocurrencies pegged to the value of a fiat currency such as the US dollar, are often used by service providers as a key trading asset to mitigate market volatility.
However, some stablecoins have experienced significant volatility or even collapsed in the past, as exemplified by the collapse of the stablecoin TerraUSD (UST) in May 2022. This highlights the critical role of reserve management to maintain price stability and safeguard investors’ rights to redeem fiat. coins
Given these risks, retail trade is allowed in the country once the regulator examines it and officially regulates stablecoins, Hui said.
Hong Kong officials warn against the risks of unregulated cryptocurrency platforms
Hui Ching-yu referred to the ongoing JPEX fraud case, which is being investigated for fraudulent activities, reflecting that crypto activities in the country need supervision.
In another live interview, Xu Zhengyu, Secretary of Financial Services and Treasury of the SAR government, highlighted the risks associated with unregulated platforms in the cryptocurrency space. These platforms often need more transparency and can operate without stability or reliability. In the event of disputes or platform failures, investors may have limited recourse to recover their funds and may suffer significant financial losses.
Xu Zhengyu further explained that investors who engage with these platforms may need avenues to file complaints. In cases where the platforms go bankrupt, cease operations, engage in fraudulent activities, breach contracts or experience security breaches, investors are at high risk of losing all the assets they have deposited with these platforms.
He cited the collapse of FTX late last year and the recent JPEX case in Hong Kong as examples, underscoring the real-world consequences of unregulated cryptocurrency platforms.
Hong Kong’s JPEX Scandal and Ongoing Cryptocurrency Regulation Efforts
JPEX, a cryptocurrency exchange in Hong Kong, halted certain services in mid-September 2023 due to a liquidity crisis caused by the “unfair treatment” of specific institutions in Hong Kong. The exchange quickly became the center of a major scandal, with Hong Kong authorities launching an investigation after receiving more than 2,000 complaints from JPEX users who reported losses of nearly 180 million dollars
The JPEX case came just weeks after Hong Kong regulators officially allowed retail investors to trade cryptocurrencies in early August 2023. However, Hong Kong police have been moving forward as they announced the arrest of 18 suspects linked to cryptocurrency exchange platform scandal. .
Additionally, Hong Kong Security Secretary Chris Tang Ping-Keung assured the public that the police are fully committed to bringing justice to those affected by the JPEX cryptocurrency exchange fraud. The Hong Kong Monetary Authority is expected to introduce regulatory guidelines for the stablecoin market by the end of 2024.
Global attention is on cryptocurrency regulations. The cryptocurrency landscape in Hong Kong remains a dynamic and challenging scenario for both regulators and aspiring companies.
Hong Kong’s efforts to regulate stablecoins suggest that the city is moving towards creating a safer and more reliable environment for crypto investors. As Hong Kong embraces these innovative financial tools, its top priority is to protect investors and maintain the integrity of its markets.