Hong Kong’s Stablecoin Regulatory Framework Limits Their Use for Derivatives Trading
According to Sebastian Paredes, CEO of DBS Hong Kong, the stablecoin regulatory framework in Hong Kong limits their application for derivatives trading on blockchain networks.
As reported by local news outlet The Standard on Friday, Paredes noted that Hong Kong’s regulations regarding stablecoin Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements will greatly restrict their utilization for on-chain derivatives trading. He mentioned that the bank intends to keep an eye on developments, but will prioritize building broader stablecoin capabilities within Hong Kong.
Response to New Stablecoin Rules
His remarks came in the wake of Hong Kong’s new stablecoin regulations that were implemented on August 1. These regulations immediately prohibited the promotion of unlicensed stablecoins and set up a public registry of authorized issuers.
Criticism has also surfaced regarding these regulations, with some deeming Hong Kong’s stablecoin rules excessively stringent. When the framework was announced, stablecoin companies operating within Hong Kong experienced double-digit losses, attributed to these unexpectedly strict regulations.
The DBS local branch stands as a significant bank in Hong Kong, with nearly 492 billion Hong Kong dollars ($63.2 billion) reported last year, according to regulatory filings. Additionally, DBS holds the title of the largest bank in Southeast Asia by assets, which total $842 billion Singapore dollars ($620 billion).
DBS has actively engaged with blockchain technology and the cryptocurrency sector for a long time. Earlier this month, they joined forces with Franklin Templeton and Ripple to introduce tokenized trading and lending services for institutional investors, utilizing the XRP Ledger.
Furthermore, in late August, DBS opted to broaden its digital asset offerings by launching tokenized structured notes on the Ethereum blockchain. The bank is well-acquainted with stablecoins, having been tasked with managing the US dollar reserve for the Global Dollar (USDG).
In late 2024, DBS plans to debut a new suite of blockchain-powered services for its institutional clients, which will include over-the-counter crypto options. Last year, the bank also rolled out a solution leveraging blockchain technology to enhance the disbursement of government grants.
Before and after the introduction of the new framework, Hong Kong was vibrant with stablecoin activities. Following the enforcement of the strict rules, an official from the Hong Kong Securities and Futures Commission (SFC) cautioned that the new local stablecoin regulatory framework has escalated the risk of fraud.
This statement was primarily influenced by the wave of speculation around companies expressing their interest in acquiring a stablecoin license. Reports emerged that HSBC and ICBC were mulling over applying for stablecoin licenses, only for indications to appear that these firms retreated under pressure from Chinese authorities.
In early August, Chinese authorities directed local firms to halt research publications or seminars associated with stablecoins. This was later followed by a since-removed report from the prominent local financial news outlet Caixin, suggesting that mainland Chinese firms operating in Hong Kong might be compelled to withdraw from cryptocurrency-related activities.
