Hong Kong Moves Toward Looser Bank Standards for Crypto in Bid To Cement Regional Dominance

Core Insights - Hong Kong is advancing its position as Asia's crypto hub by proposing relaxed banking regulations for institutions holding licensed stablecoins and digital assets [1][8] - The Hong Kong Monetary Authority (HKMA) has introduced CRP-1, a new supervisory policy manual that reclassifies crypto assets under Basel Committee standards [1][2] Regulatory Framework - The proposed framework allows banks to classify licensed stablecoins as lower-risk assets, reducing capital requirements compared to current international banking rules [2][3] - The new Stablecoin Ordinance mandates that only licensed issuers can operate, enabling compliant stablecoins to be held on bank balance sheets with a lighter regulatory burden [3][4] Consultation and Implementation - The consultation period for the CRP-1 framework is open until November 7, 2025, with the new rules expected to take effect on January 1, 2026 [3][8] Market Impact - Industry observers suggest that the relaxed rules could lower compliance costs, foster innovation in tokenized products, and provide banks with more freedom to engage in the growing stablecoin market [4][10] Crypto Classification - The HKMA has categorized crypto into two groups: Group 1 includes assets with stabilization mechanisms and effective risk controls, while Group 2 encompasses unbacked or algorithmic crypto assets [5][9] - Group 1 is further divided into Subgroup 1a for tokenized traditional assets and Subgroup 1b for licensed stablecoins [9] Strategic Positioning - Hong Kong aims to position itself as a gateway for global digital finance by combining strict licensing with policies that promote institutional adoption [10][11] - Despite 77 applications for stablecoin licenses, only a limited number are expected to be approved initially [10]