Klaas Knot, Chairman of the Financial Stability Board (FSB), made a statement on some altcoins on Monday. On the other hand, some proposals for cryptocurrencies have emerged in Hong Kong. Here are the details…
FSB Chairman made a statement for altcoins: New requirements are coming
Chairman Klaas Knot said on Monday that many existing stablecoins will not meet the “high-level” recommendations that will soon be set by global standard-setters like the FSB. In a letter to G20 finance ministers and central bank governors, Knot said the FSB’s upcoming guidance aims to strengthen stablecoin governance frameworks, redemption rights and stabilization mechanisms.
According to the 2023 work plan released Monday, the FSB is set to finalize its recommendations for the regulation of crypto and stablecoins by July. Stablecoins are cryptocurrencies pegged to the value of other assets such as the US dollar or euro. You can see the top 20 stablecoins by market cap as follows:
Regulatory efforts on the rise
Regulators around the world are taking steps to oversee payment-oriented stablecoins, many of which are backed by currency reserves in the form of cash equivalents or unsecured short-term debt. As stablecoin issuers strive to reduce private debt in their reserves and increase transparency, Knot’s message shows that these measures may not be enough. In the Knot letter, he added that most current stablecoins will also not meet international norms set by payments or securities standard setters.
In February 2022, the FSB warned that risks to financial stability altcoins could “rise rapidly”. Regulators around the world, including the FSB, are stepping up their efforts to oversee the industry after many companies went bankrupt last year. Last week, the FSB said it would work with other standard-setting bodies to determine how decentralized finance (DeFi) should be regulated. He also plans to prepare a report on crypto-related regulatory issues with the International Monetary Fund (IMF). Apart from that, a move came from Hong Kong today.
Cryptocurrency move came from Hong Kong
The Hong Kong Securities and Futures Commission (SFC) published its proposed rules for crypto-asset trading platforms on Monday and is awaiting public comment. According to an official announcement, in addition to establishing a licensing regime for crypto service providers, the regulator is also seeking opinions on whether licensed platforms should be allowed to serve individual investors and under what investor protection measures these services should be offered.
All crypto trading platforms that plan to apply for licenses under the new regime, including pre-existing platforms, should “start reviewing and revising their systems and controls to prepare for the new regime.” Also, according to the statement, those who do not plan to apply for a license should start preparing to close their business in Hong Kong on an orderly basis. Hong Kong also plans to issue stablecoins from June of this year.
The consultation document, released Monday, lays out recommended requirements, such as assessing clients’ risk profile and setting limits to ensure their exposure is “reasonable.” As part of the proposed measures, it will be up to operators to do due diligence on tokens and monitor them. This includes assessing the legal status of the asset in each jurisdiction where the operator offers trading services. It also suggests controls over the liquidity of the operator and whether its assets are concentrated or controlled by a small number of individuals or entities. Operators can only offer tokens that meet the SFC’s criteria for “eligible large-volume cryptoassets” listed in two “acceptable indices”.
Altcoins will be tracked by Hong Kong
They need to run smart contract audits on tokens to check for security flaws. The proposed measures also state that operators should not offer cryptoassets that fall within the definition of “securities” if they violate Hong Kong’s Securities and Futures Regulations. The SFC recommends that operators provide a compensation arrangement that they must approve to cover risks, rather than a fixed limit for assets held in the cold wallet. Operators will have to monitor the amount of customer assets held on a daily basis and adjust regulation accordingly.
Each licensed operator may be required to set up a token acceptance and review committee to evaluate tokens for trading and set obligations for issuers to notify operators of any hard fork, airdrop or regulatory action. In the report, the SFC acknowledges that industry players want to offer derivatives and is open to hearing business models and demand and conducting a separate review to draft relevant policies.
In January 2022, the SFC allowed individual investors to access some crypto-related regulated derivatives traded on traditional exchanges. For much of the past year, the SFC seemed reluctant to allow retail investors access to crypto under its crypto-asset licensing regime. He signaled his willingness to change his stance at Hong Kong FinTech Week in November last year. The consultation is open until March 31, while the new licensing will take effect on June 1.
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