It is interesting to observe that Hong Kong is indeed going ahead with its plan for a stablecoin regulatory sandbox. We recently wrote about the dearth of fintech regulatory sandbox success stories. In most cases, excessive restrictions prevent any real experimentation from happening.
Could this time be different? Perhaps the cryptocurrency segment could be an exception to this rule. The reason is that compared to other fintech segments like payments (in fiat currency), digital banking, embedded finance etc. crypto is more volatile and prone to problems. In a sandbox scenario, the crypto sector could feel relatively free to experiment while being insulated from the typical regulatory challenges it faces.
Per the rules announced by the HKMA in March, sandbox applicants should have genuine interest in developing a stablecoin issuance business in Hong Kong with a reasonable business plan, and their proposed operations under the sandbox arrangement will be conducted within a limited scope and in a risk-controllable manner. While that sounds a bit restrictive, it also leaves room for different interpretations.
One of the sandbox’s first projects is a proof-concept pilot involving Standard Chartered, the digital bank Mox Bank, Mastercard and Libera. Completed in May, the project explores the operational and risk management benefits of tokenized deposits to support the settlement of tokenized assets. Other stablecoin issuers admitted into the sandbox include Jingdong Coinlink Technology, RD InnoTech, and a joint venture from Standard Chartered Bank, Animoca Brands, and Hong Kong Telecommunications.
A finalized bill for regulating stablecoins will be submitted to the Legislative Council later this year, according to the HKMA. Regulators also plan to set out separate guidelines to address money laundering risks related to stablecoins.