The People’s Bank of China (PBOC), the country’s central bank, has highlighted global efforts to regulate digital assets in its annual financial stability report for 2024 whilst also noting that Hong Kong is “actively exploring” a digital asset licensing regime.
The China Financial Stability Report, released on December 27, included a section dedicated to digital assets, in which the PBOC pointed out that 51 jurisdictions globally have issued bans or restrictions on digital assets. Specifically, it mentioned how some economies adjusted existing laws, such as Switzerland and the United Kingdom, while others enacted new legislation, the most notable being the European Union’s Markets in Crypto Assets regulation (MiCAR).
In September 2021, the PBOC, along with nine other Chinese regulators, issued the “Notice on Further Preventing and Managing the Risks of Crypto Trading No. 237,” which effectively banned digital assets in the country.
The notice stated that digital assets are not legal tender in China, that digital asset transactions are illegal, and that any entities and individuals involved in the trading of digital assets may face administrative and criminal penalties. The notice amounted to the most comprehensive digital asset regulation in China to date, and the ban even went so far as to state that providing online services to Chinese residents via overseas digital asset trading platforms is considered illegal and subject to criminal liability.
However, in stark contrast to the mainland prohibition, the trading of digital assets is legal in the Hong Kong Special Administrative Region.
In June 2023, Hong Kong launched a digital asset licensing regime for trading platforms, allowing licensed exchanges to offer retail trading services. More recently, in August 2024, the Hong Kong Legislative Council appeared to double down on their intent to make the region a crypto-hub, with Council member David Chiu announcing plans to introduce enhanced digital asset regulations within the next 18 months.
According to Chui, the Hong Kong government aims to enhance the supervision and enforcement of legislation related to digital asset financial products, including stablecoins. He added that Sandbox tests have already been carried out to establish the best form this impending legislation should take.
The PBOC financial stability report noted that Hong Kong also requires major financial institutions, such as HSBC (NASDAQ: HSBC) and Standard Chartered Bank (NASDAQ: SCBFF), to include digital asset transactions in their routine customer supervision.
The central bank also suggested that it is working to improve an international regulatory framework for digital assets, as recommended by the Financial Stability Board (FSB)—an international body that monitors and makes recommendations about the global financial system—in its July 2023 publication “global regulatory framework for crypto-asset activities.”
“Overall, the connections between crypto activities and systemically important financial institutions, core financial markets and market infrastructures may be limited,” the PBOC said. “However, cryptocurrencies may pose risks in some economies as the application scenarios of cryptocurrencies in payments and retail investments increase.”
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