New Report from China Hints at Possible Change to Crypto Stance Following Hong Kong Success

The People’s Bank of China’s “China Financial Stability Report (2024)” provides a comprehensive overview of global financial trends, dedicating significant attention to cryptocurrencies’ evolving regulatory landscape.

The report highlights the increasing international focus on crypto asset supervision, emphasizing Hong Kong’s proactive approach to licensing and the diverse regulatory responses adopted globally.

The report notes the significant market rebound in 2023, following the turbulent events of 2022. Despite a year-on-year increase of 10.71% in global market capitalization, reaching $1.55 trillion by year-end, concerns persist regarding the potential systemic risks of crypto assets.

This concern is highlighted by the fact that 51 countries and regions have implemented outright bans on cryptocurrencies, while others are actively revising existing legislation or enacting new regulatory frameworks.

Varied Crypto Approach China Could Follow

The report details the varied approaches taken by different jurisdictions. The United States, for example, focuses on regulating issuers who violate securities laws, exemplified by the SEC’s initial rejection of numerous Bitcoin spot ETF applications, followed by a cautious approval in January 2024.

In contrast, the European Union has adopted a more comprehensive approach with the Crypto-Asset Market Regulation Act (MiCA), establishing what the report describes as the world’s first complete regulatory framework for virtual assets, slated for implementation by the end of 2024.

The United Kingdom has also strengthened its regulatory framework through the Financial Services and Markets Act, explicitly including crypto assets within its regulatory scope. Singapore’s Stablecoin Regulatory Framework clarifies the regulatory parameters for stablecoins, while Japan’s Funds Settlement Act restricts stablecoin issuance to licensed institutions.

Hong Kong’s approach is particularly noteworthy. The report details Hong Kong’s active pursuit of a crypto asset licensing regime, categorizing virtual assets as either securitized or non-securitized financial assets. This “dual licensing” system, based on the Securities and Futures Ordinance and the Anti-Money Laundering Ordinance, mandates licensing for all virtual asset trading platform operators.

The report’s Macroprudential Management section further underscores the complexities of managing the crypto asset ecosystem. While acknowledging the currently limited correlation between crypto activity and systemically important financial institutions, it emphasizes the potential for increased risk as cryptocurrency adoption grows in payments and retail investments.