Hong Kong’s newly implemented stablecoin regulatory framework has been criticized for being overly restrictive, particularly with regards to derivatives trading on blockchain networks. According to Sebastian Paredes, CEO of DBS Hong Kong, the regulations on Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements will significantly limit the use of stablecoins for on-chain derivatives trading. As a result, DBS will focus on building broader stablecoin capabilities in Hong Kong, rather than pursuing derivatives trading.
The new regulations, which came into effect on August 1, have already had a significant impact on the stablecoin industry in Hong Kong. The rules have criminalized the promotion of unlicensed stablecoins and established a public registry of authorized issuers. This has led to double-digit losses for some stablecoin companies operating in Hong Kong, as the rules are stricter than expected.
Despite these challenges, DBS is committed to exploring the potential of stablecoins in Hong Kong. The bank has a long history of involvement in the crypto industry and has been at the forefront of blockchain technology. Earlier this month, DBS partnered with Franklin Templeton and Ripple to launch tokenized trading and lending services for institutional investors. The bank has also launched tokenized structured notes on the Ethereum blockchain and manages the US dollar reserve of the Global Dollar (USDG).
However, Hong Kong’s stablecoin regulatory framework has been criticized by others as well. A Hong Kong Securities and Futures Commission (SFC) official warned that the new framework has increased the risk of fraud, and Chinese authorities have instructed local firms to cease publishing research or holding seminars related to stablecoins. This has led to uncertainty and volatility in the stablecoin market, with some companies considering withdrawing from cryptocurrency-related activities.
Overall, Hong Kong’s stablecoin regulatory framework has created challenges for the industry, particularly with regards to derivatives trading. While DBS and other companies are committed to exploring the potential of stablecoins, the restrictive regulations will likely limit their use and growth in the region. As the regulatory environment continues to evolve, it remains to be seen how the stablecoin industry will adapt and respond to these changes.