Regulators should seek greater disclosure from stablecoin issuers: HK monetary authority researchers

Reg­u­la­tors should seek more dis­clo­sure from sta­ble­coin issuers, as sta­ble­coins could trans­mit risk from mar­kets to tra­di­tion­al finance, accord­ing to researchers at the Hong Kong Mon­e­tary Authority.

See relat­ed arti­cle: Hong Kong, BIS explore CBDC-backed sta­ble­coins in retail prototype 

Fast facts

• In extreme mar­ket con­di­tions, the fail­ure of a sta­ble­coin or oth­er dig­i­tal asset could lead to mas­sive with­drawals or redemp­tions, which could weigh on tra­di­tion­al finance mar­kets – cur­ren­cy mar­kets, U.S. Trea­suries and equi­ties, said the researchers in their paper. 
• The paper high­light­ed that the cryp­to ecosys­tem remains large­ly unscru­ti­nized by reg­u­la­tors, with data gaps lim­it­ing reg­u­la­tors’ assess­ment of spillover risks.
• To reduce risk of spillovers in cryp­to mar­kets, issuers whose assets sup­port sta­ble coins should be required to make “stan­dard­ized and reg­u­lar” dis­clo­sures of their hold­ings to help reg­u­la­tors assess liq­uid­i­ty and risks.
• The paper also rec­om­mend­ed strength­en­ing the liq­uid­i­ty man­age­ment of asset-backed sta­ble­coins, such as lim­it­ing the com­po­si­tion of reserve assets and requir­ing clear redemp­tion rights.
• Giv­en the bor­der­less nature of the cryp­to indus­try, effec­tive imple­men­ta­tion of the above will require inter­na­tion­al­ly coor­di­nat­ed reg­u­la­tion and coop­er­a­tive over­sight to pre­vent reg­u­la­to­ry arbi­trage, the paper concluded.
• Polit­i­cal Assis­tant to the Sec­re­tary for Hong Kong Finan­cial Ser­vice and the Trea­sury Julian Ip said in Octo­ber that Hong Kong reg­u­la­tors have iden­ti­fied sta­ble­coins as an effi­cient lend­ing tool, while it con­sid­ers draw­ing on tra­di­tion­al reg­u­la­to­ry regimes in reg­u­lat­ing the dig­i­tal asset.
• See relat­ed arti­cle: Sta­ble­coin, CBDC take cen­ter stage at Singapore’s Future of Finance Forum