MAS Offers Guidelines for Banks Handling Crypto-Related Clients

The Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) are charting new regulatory territory with the release of a comprehensive consultation paper outlining their proposal to accept and regulate fiat-referenced stablecoins (FRS) within the Chinese autonomous territory.Photo by Ben Cheung on PexelsConsultation processThe proposal has been published to the FSTB website in the form of a consultation paper titled “Legislative Proposal to Implement the Regulatory Regime for Stablecoin Issuers in Hong Kong.” Separately, the HKMA has published a press release on the topic. This development seeks to establish a regulatory framework for stablecoin issuers and address associated risks. The consultation period is scheduled to conclude on Feb. 29 of next year. At the heart of this legislative proposal is the requirement for companies actively marketing the issuance of FRS to the public of Hong Kong to obtain a specific local license from the HKMA. The proposed criteria for obtaining this license are robust and include key elements such as maintaining reserves “at least equal to the par value” of all circulating stablecoins. This measure ensures that stablecoins remain fully backed, contributing to their stability and reliability. The legislation also places a strong emphasis on the segregation and secure safekeeping of reserve assets, enhancing the protection of users’ funds and preventing misuse. Furthermore, issuers will be mandated to provide transparent disclosure and regular reporting, fostering accountability and transparency within the stablecoin ecosystem. It is noteworthy that the proposed regulations explicitly exclude algorithmic stablecoins from obtaining an HKMA license, underlining a preference for stablecoins with solid reserve backing. No doubt the spectacular collapse of the UST algorithmic stablecoin in 2022 has informed the Hong Kong regulator’s decision to exclude consideration of algorithmic stablecoins in this instance. Need to establish Hong Kong presenceTo underscore their commitment to regulatory compliance, stablecoin issuers seeking an HKMA license will also be required to establish a registered office in Hong Kong. This office must have a chief executive, senior management team and key personnel in place, aligning with Hong Kong’s efforts to ensure that all activities related to stablecoin issuance are conducted responsibly. The proposed licensing regime for FRS aligns with Hong Kong’s broader strategy to foster the growth of the Web3 ecosystem within the region. Christopher Hui, Secretary for Financial Services and the Treasury, highlighted the significance of this move, stating: “With the implementation of the licensing regime for VA trading platforms from June this year, the legislative proposal to regulate FRS is another important measure facilitating Web3 ecosystem development in Hong Kong.” Market competitionBack in February, the HKMA signaled its intent to regulate stablecoins when it issued a discussion paper considering various regulatory approaches. Competition is on an upward trajectory relative to stablecoin issuance and use. In June, Hong Kong-based qualified custodian First Digital Trust announced that it was gearing up to launch "First Digital USD," a U.S. dollar-backed stablecoin regulated in Asia rather than the United States. Leading stablecoin issuer Circle has been active in furthering its product offering in Asia during 2023. It successfully attained licensing approval in Singapore while in Japan, it joined forces with SBI Holdings in an effort to propel further growth of its USDC stablecoin within the Japanese market.

GRVT (Gravity), a self-custodial hybrid crypto exchange, has received $5 million in funding from Abu Dhabi-based venture capital firm Further Ventures. That’s according to a report published by The Block on Jan. 21. GRVT seeks to blend the benefits of both centralized exchanges and decentralized exchanges in a hybrid model built using ZKsync’s Validium ZK Chain. The platform offers off-chain order matching paired with on-chain settlement at a rate of 600,000 transactions per second (TPS). Settlements are secure and verifiable on the blockchain, while the user maintains custody of his/her assets, and the order book infrastructure is nevertheless centralized.Photo by Towfiqu barbhuiya on UnsplashEquity-based funding dealThis latest equity-based funding round ran from October until it was closed out in December. Further Ventures, an entity that specializes in early-stage startup funding, led the round, making this its latest investment into a crypto-sector startup.  Earlier this month, the venture capital firm led a funding round into Paris-based crypto wallet technology firm Dfns. Last year, it collaborated with Singapore-headquartered crypto trading firm QCP Capital, in facilitating its expansion in Abu Dhabi.  Other crypto-related investments include staking services provider Twinstake, crypto custodian Tungsten, blockchain infrastructure platform Fuze and crypto derivatives platform Kemet Trading.  Further Ventures counts ADQ, Abu Dhabi’s sovereign wealth fund, among its investors. In 2022, it established a $200 million fund, which was earmarked for investment into early-stage startups in the fintech, digital assets and supply chain sectors. In the past, Hong Kong-based GRVT has held pre-seed and seed funding rounds that involved GRVT token warrants. On this occasion, the funding deal was structured as equity. GRVT CEO Hong Yea explained that equity was chosen as it was felt that the GRVT token should be held in reserve for the community. Additionally, structuring the funding round around equity means that the holding company has the freedom to pivot or expand into alternative business lines in the future. $14.3 million in funding to dateBack in October 2023, the project raised $7.1 million in funding based on a $39 million valuation. That round was co-led by Matrix Partners alongside Delphi Digital, with further participation by Susquehanna Investment Group, CMS Holdings, ABCDE and Hack VC. Matter Labs, the developer of the ZKsync scaling network that GRVT runs on, was also a participant.  This latest funding round brings GRVT’s total capital raised to $14.3 million. In March of last year, the firm had raised $2.2 million from a private token sale. Expanding spot & options tradingIt’s understood that the new funding will be used to expand the platform’s crypto spot and options trading. Furthermore, the firm has plans to acquire an upgraded full Class F license from the regulator in Bermuda. Currently, the Bermudan authorities have issued the company with a modified Class M crypto business license. In an effort to unlock its offering to a broader global market, the company also has plans to pursue a Markets in Crypto-Assets (MiCA) license within the European Union and a virtual assets service provider (VATP) license from the Virtual Assets Regulatory Authority (VARA) in Dubai. 

Zodia Custody Expands to Hong Kong to Meet Asian Institutional DemandZodia Custody, the crypto arm of British banking conglomerate Standard Chartered, is extending its digital asset custody services to financial institutions in Hong Kong, making further in-roads in terms of the company’s Asia-Pacific expansion.News of the expanded offering came via a CNBC report published on Sunday. Launched in 2020, Zodia Custody was founded to address the growing institutional demand for secure crypto asset storage, making Hong Kong a strategic addition to its service areas alongside its recent foray into the Australian market.Photo by Emily Xie on UnsplashAsia-Pacific expansionCurrently, only two companies, OSL Digital and HashKey, have obtained licenses from the Securities and Futures Commission (SFC) to operate within Hong Kong’s regulated crypto space. In its initial phase of operations in Hong Kong, Zodia Custody intends to offer a limited range of crypto assets to its institutional clients, aligning with its commitment to prudent expansion.Zodia Custody’s expansion into Hong Kong follows a series of moves into other key Asia-Pacific (APAC) markets, including Japan, Singapore, and Australia. Moreover, the company remains open to potential partnerships and clientele from regions beyond its current operational footprint.Earlier this month, Zodia Custody made headlines in Australia with the introduction of SAF3, a digital asset custody platform tailored specifically for institutional clients. SAF3 boasts bank-grade cold wallet storage accessible in real-time, complemented by advanced risk management and fraud detection capabilities. Julian Sawyer, the CEO of Zodia Custody, emphasized the importance of responsible institutional adoption, a significant step as Australia’s digital asset industry continues to mature.Institutional demand in Hong KongIn response to the surging institutional interest in crypto assets, Zodia Custody is capitalizing on this market trend, recognizing that Hong Kong’s demand for crypto services is predominantly institutionally driven. Sawyer underlined the unique character of the Hong Kong crypto market compared to other regions, where retail consumers often dominate trading activities. The confluence of institutional demand and Zodia’s specialized services positions Hong Kong as an ideal market for the company’s expansion.Notably, Hong Kong has demonstrated a more crypto-friendly stance compared to its neighboring China, which has taken a stricter approach with crypto bans. Earlier this year, Hong Kong’s SFC introduced a regulatory framework that allows companies to register and provide regulated crypto services. In light of these developments, Zodia Custody is in talks with both the SFC and the Hong Kong Monetary Authority to secure regulatory approval within the financial district.Julian Sawyer articulated this opportunity, stating:“The Hong Kong government and the regulators see digital assets as the future and also want Hong Kong to be a hub.” These discussions are poised to pave the way for Zodia Custody to operate within a well-regulated environment.Standard Chartered has been making in-roads into the Asian market, largely through its Singaporean subsidiary SC Ventures. Zodia Custody launched in Dubai in June and in Singapore last month.However, it is not just progressing solely in the Asia-Pacific region. Recently, Zodia Markets, another Standard Chartered subsidiary, achieved registration as a Virtual Asset Service Provider (VASP) with the Central Bank of Ireland. In September, Zodia Markets also made significant strides in the Middle East and Africa by securing In-Principle Approval from the Abu Dhabi Global Market.