Hong Kong SFC warns new stablecoin rules may fuel fraud risks, urging investors to stay cautious amid speculation-driven hype.
According to a Hong Kong Securities and Futures Commission (SFC) officer, the new local stablecoin regulatory framework has raised the possibility of fraud.
Ye Zhiheng, executive director of the SFC’s intermediates division, stated in a report published on August 18 by the Chinese financial news site Zhitongcaijing that the recent implementation of stable token regulations has raised the possibility of fraud.
He advised investors to use prudence and avoid rash choices motivated by price momentum or market frenzy.
Ye made these comments after Hong Kong-based stable token businesses reported double-digit losses on August 1, shortly after the new stablecoin law was enacted.
Because the standards for stablecoin issuers were more severe than anticipated, analysts at the time characterized the sell-off as a healthy correction.
However, Ye claimed that just by announcing their intention to seek a stable token license, some businesses noticed an increase in the value of their stock.
Authorities In Hong Kong Caution Against Speculation About Stablecoins
The SFC and the Hong Kong Monetary Authority (HKMA) jointly released a statement last Thursday on recent stablecoin market movements.
The authorities cited the companies’ “recent abrupt market movements linked to the stable token concept.”
The notice stated, “These movements seem to follow news reports, social media posts, corporate announcements, or rumors about plans to apply for a stable token issuer license, engage in related activities, or investigate the viability of such initiatives in Hong Kong.”
Additionally, the SFC stated that it would carefully monitor Hong Kong’s trading activity.
To protect the market’s integrity, the regulator intends to “take stringent actions against any manipulative or deceptive practices.”
Hong Kong Regulators Place High Premium On Cryptocurrency
The warnings coincide with the start of Hong Kong’s enforcement of its stable token Ordinance, which went into effect on August 1 and established a six-month compliance transition period.
Offering or promoting unlicensed fiat-referenced stablecoins to individual investors is illegal under the Stablecoin Ordinance.
These actions also came after local authorities established a specific public license register and finalized their regulatory framework for stablecoin issuers.
The SFC also released practical guidelines on cryptocurrency custody standards last week.
These guidelines include broad security requirements and a prohibition on using smart contracts in cold wallet implementations, which may be at odds with the current procedures of several top companies.
