The Hong Kong Monetary Authority (HKMA) CEO advised against excessive speculation amid the growing interest in the stablecoins sector. The warning comes ahead of the enactment of key related legislation and the imminent issuance of licenses.
HKMA Concerned Over Stablecoins Hype
On Wednesday, Hong Kong Monetary Authority CEO Eddie Yue shared a blogpost on the regulator’s website reaffirming his stance on the ongoing “stablecoins craze,” suggesting that the market discussions should be “cooled down.”
In the blogpost, Yue asserted that stablecoins hold positive significance as an “emerging payment tool that is gradually integrating into the traditional financial system through regulation.”
As such, public interest in the sector, the expectations for their functions, and prospects are normal. However, he warned against excessive hype in the market and public opinion, noting a growing concern ahead of the enactment of the Stablecoins Ordinance on August 1.
In May, Hong Kong’s Legislative Council passed the highly anticipated Stablecoins Ordinance, requiring any individual or entity seeking to issue a fiat-referenced stablecoin (FRS) in Hong Kong, or any Hong Kong Dollar (HKD)-pegged token, to obtain a license from the HKMA.
Under the legislation, licensed entities will be allowed to offer FRS in the jurisdiction, while retail investors will be able to access the tokens issued only by these qualified institutions.
The HKMA CEO considers that there has been “excessive conceptualization” recently, explaining that the discourse surrounding the sector “often focuses on their disruptive potential for traditional finance,” but fails to offer a path for “translating these concepts and theories into practical applications and specific arrangements.”
Notably, dozens of institutions have reportedly reached out to the HKMA staff, with some explicitly expressing their intention to apply for a stablecoin license. Nonetheless, most of these companies are still in the conceptual phase, according to the post.
“Summarizing the experiences from these engagements, many remain at the conceptual stage, such as proposing visions to enhance cross-border payment efficiency, support Web3.0 development, and improve foreign exchange market efficiency, but lack concrete application scenarios. They cannot propose feasible specific plans or implementation strategies, let alone possess the awareness and capability to manage risks.”
Only A Few Licenses To Be Approved
Yue also raised concerns over a developing trend toward speculation as the market has become “overly enthusiastic” with the hype surrounding stablecoins. He noted that listed companies, whose core businesses are not related to stablecoins or crypto, have benefited from the ongoing speculation.
Some listed companies (…) have seen their stock prices surge and trading volumes increase simply by announcing their intention to explore stablecoin businesses, thereby significantly enhancing their corporate profiles.
However, the financial authority noted that it previously stated only a few licenses would be issued during the initial stage, which will lead many to “be disappointed.”
“Even if a license is obtained, given our desire for steady development and the initial resource investments required, there will be some uncertainty regarding the contribution to the company’s short-term profits,” the HKMA CEO detailed on Wednesday.
Yue also reiterated that from the date of the Ordinance’s implementation, any promotion of unlicensed stablecoins to the public in Hong Kong will be illegal.
The regulator expects to publish the updated requirements of the licensing guidelines by the end of July, which will include stricter Anti-Money Laundering (AML) requirements to minimize risks and ensure the orderly and healthy development of Hong Kong’s stablecoin market.
As reported by Bitcoinist, Hong Kong’s Financial Secretary, Paul Chan Mo-po, revealed last month that the HKMA had received several applications from entities seeking to become qualified issuers.
According to local reports, multiple companies applied for the HKMA license in June, including logistics technology firm Reitar Logtech and the overseas arm of Chinese mainland financial technology giant Ant Group.
The financial regulator is attempting to ensure balanced growth with regulation as the first step of its phased plan. Meanwhile, Chan said that the second step might involve stablecoins linked to other assets that are “integrated with the real economy,” explaining that they must have practical use cases, instead of “being speculative instruments.”
