Hong Kong’s stablecoin rules attract Chinese asset manager Harvest Fund

abdelaziz Fathi

Hong Kong’s initiative to implement stablecoin regulations as early as this quarter has caught the attention of several key players in the financial sector. Among them is the international arm of Chinese asset manager Harvest Fund Management Co.

Hong Kong

Harvest Global Investments Ltd., along with fintech specialist RD Technologies and crypto ETF hopeful Venture Smart Financial Holdings Ltd., are reportedly in talks with the Hong Kong Monetary Authority (HKMA) about the planned stablecoin trials known as regulatory sandboxes. These discussions, as reported by Bloomberg and others, are part of a private and ongoing conversation.

In a related move, Harvest Global Investments has submitted an application for a spot-bitcoin exchange-traded fund (ETF) with Hong Kong’s Securities and Futures Commission (SFC). This comes after the U.S. regulators approved nearly a dozen applicants for spot-bitcoin ETFs in December 2023. Following this development, Hong Kong regulators said they are open to consider similar applications for spot crypto ETFs.

Hong Kong-based Venture Smart Financial Holdings is also preparing to file for a spot bitcoin ETF and expects to launch trading in the first quarter of the year. Both Venture Smart Financial and Harvest, along with RD Technologies, are part of the entities engaged in discussions with HKMA about the upcoming stablecoin sandbox.

This regulatory initiative is part of Hong Kong’s plans to establish a supervised framework for stablecoin issuers through a licensing system. The authorities are currently seeking feedback on these proposals until the end of February.

The move comes as lawmakers are calling for tightened regulations to address the loophole that allows unlicensed platforms to operate in a regulatory vacuum. The regulator clarified that only stablecoins issued by licensed entities could be offered to retail investors.

Under the proposed rules, any issuer of a stablecoin pegged to one or more fiat currencies in Hong Kong must be licensed by the HKMA. Additionally, these licensed issuers will need to be locally incorporated, have a management presence in the city, and establish a settlement mechanism. This mechanism involves maintaining a reserve of high-quality, highly-liquid assets with appropriate custody arrangements.

Responding to the proposal, Hong Kong lawmaker Johnny Ng highlighted the presence of major global stablecoins already circulating in the market. He raised concerns about the implications for these stablecoins if their issuers do not obtain a local license within the specified timeframe. Ng cautioned that this could impact the operations and trading volume of cryptocurrency transactions in Hong Kong.

Elsewhere, lawmakers criticized the SFC’s reactive approach and highlighted the need for proactive measures to prevent fraudulent crypto platforms from operating unchecked. They suggested utilizing the Telecommunications Ordinance to ban suspicious sites, as is done in other developed countries, and urged the SFC and police to collaborate more closely to protect the public.

The SFC, while acknowledging many fraud incidents, defended its monitoring system, stating that time is needed for a proper investigation.

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