Hong Kong SFC CEO Prioritizes Investor Protection in Crypto Regulations

In a recent report, Circle Internet Financial, the issuer of the USDC stablecoin, emphasized the growing adaptability of the Asian population towards digital currencies. This trend indicates a substantial potential for increased stablecoin usage in the Asia Pacific region. On Monday, the firm published "The State of the USDC Economy 2024 Report," providing a trove of relevant and timely data. Since its launch in 2018, the USDC stablecoin has facilitated over $12 trillion in blockchain transactions. The focus of the report is on the surge in remittances flowing into Asia, highlighting its growing presence. Remittances of $130 billion into AsiaAccording to a World Bank press release, remittances to Asia reached $130 billion in 2022, with the average cost of transferring $200 standing at 5.7% in the last quarter of the year. Meanwhile, the region accounted for 29% of all global digital asset value received, surpassing North America's 19% and Western Europe's 22%. Against this backdrop, the report sheds light on Circle's strategic partnership with Coins.ph, a crypto exchange in the Philippines, which aims to tap into the country's personal remittance demand, estimated at around $36 billion annually.  In another blog post, the company also dispels the notion that stablecoins are primarily used for speculative trading, citing a 90% decline in such activities over the past five years. This shift in usage patterns highlights the growing acceptance and adoption of stablecoins for practical applications like remittances and trade finance.Photo by Marjan Blan on UnsplashIncreasingly important role in trade financeImportantly, Circle asserts that USDC can play a role in closing the region's $510 billion trade finance gap. This gap represents the lack of liquidity available to companies for cross-border remittances and credit, particularly affecting emerging markets with capital outflow restrictions. The report underlines how businesses in these markets often struggle to secure funding for international trade, and USDC is emerging as a solution. One notable case study is Taipei-based XREX, which utilizes USDC to build financial pipelines between countries, leveraging the deep dollar liquidity in Taiwan to address the dollar scarcity in other Southeast Asian economies. This exemplifies how stablecoins like USDC are contributing to bridging financial gaps and facilitating international trade in regions with limited access to traditional banking services. Stablecoin-specific regulationThe regulatory landscape in the Asia-Pacific region is also evolving to accommodate stablecoins. Countries like Singapore, Hong Kong and Japan have implemented or proposed frameworks for stablecoin regulation, aligning with the growing importance of digital assets in the financial ecosystem. Circle has become increasingly active within the APAC region. In November, the firm joined forces with Japanese financial services conglomerate SBI Holdings to increase the circulation of USDC within Japan. Having been awarded a Major Payments Institution (MPI) license in Singapore in June, Circle followed that up later in the year by launching a zero-fee USDC minting facility within the city-state. Considering these developments, the Asia-Pacific region, with its large unbanked population and significant digital wallet usage, is predicted to witness quick adoption of stablecoins for cross-border payments.

Jingdong Coinlink Technology Hong Kong Limited, a branch of JD Technology Group, has declared its intention to launch a stablecoin tied 1:1 to the Hong Kong dollar (HKD). Despite its status as a sandbox participant under the Hong Kong Monetary Authority (HKMA), Jingdong Coinlink has clarified that this does not imply endorsement or licensure for stablecoin issuance. The company aims to offer this blockchain-based stablecoin as a solution for businesses seeking efficient, cost-effective and secure payment methods.Photo by Ben Cheung on PexelsThe proposed stablecoin promises redemption on a 1:1 basis, supported by reserves of “highly liquid, highly-trusted assets” held in licensed financial institutions. Furthermore, Jingdong Coinlink commits to ongoing cooperation with global regulatory bodies to ensure compliance with existing and future legal frameworks. Cryptocurrency developments in Hong KongThis announcement comes amidst a series of significant cryptocurrency-related activities in Hong Kong. On July 23, CSOP Asset Management launched Asia’s first Bitcoin futures inverse product, following their successful Bitcoin Futures ETF in December 2022. Additionally, the cryptocurrency exchange HKX recently retracted its application for a license from the HK Securities and Futures Commission (SFC), advising users to withdraw their crypto assets. This withdrawal adds to the growing list of 12 other platforms that have either pulled back their license applications or had them returned by regulatory authorities. 

Korean Lawmakers Complete First Rough Draft of Virtual Asset User Protection BillKorean lawmakers have completed the first rough draft of the virtual asset user protection bill at a National Policy Committee meeting held later last month.©Pexels/Matthias ZomerAgreeing on term usage ‘virtual assets’So far, 18 bills have been proposed to regulate cryptocurrencies, and the lawmakers and the Financial Services Commission (FSC) agreed to use the term “virtual assets” to encompass similar terms such as digital assets and crypto assets.Phased enactment of billsThe bills are likely to be reviewed under the title “Virtual Asset User Protection Act.” The bipartisan group agreed to enact the bills in phases, introducing the user protection bill in the first phase and the virtual asset listing and issuance bill in the second phase.Meanwhile, there were mixed opinions on the content of the bills. In particular, there was debate over whether the bills should stipulate that the central bank digital currency (CBDC) is excluded from virtual assets, and whether the bills should include a standard for determining if a virtual asset is a security.Debate over stipulating CBDC’s statusThe stipulation of excluding CBDC from virtual assets was the most divisive topic since it would lead to defining the conditions for other assets such as non-fungible tokens. Moreover, the Act on Reporting and Using Specified Financial Transaction Information, which currently regulates virtual asset service providers (VASPs), does not contain any stipulation on CBDC. Some raised concerns that such discrepancies could later cause confusion. In the end, assembly members decided to discuss the matter again in April after consulting with the Bank of Korea and the Ministry of Government Legislation.Criteria for classifying virtual assets as securitiesRegarding whether to include criteria for classifying virtual assets as securities, the lawmakers and financial regulators took different sides.Lee Yong-woo, a member of the Democratic Party of Korea, underlined that a clear statement of the relationship between the issuer and the recipient of virtual assets in a whitepaper can determine their security status. He added that such provisions should be included in the bills.Park Min-woo, an FSC official, on the other hand, commented on a cautious note that in case virtual assets fall under the category of securities, they may not be applicable to the virtual asset act. He explained that VASPs might deal with both securities and virtual assets, and in such cases, there could be a misunderstanding that VASPs are not subject to the virtual asset act simply because they trade securities.