Asia-Pacific navigates diverse stablecoin regulations, experts weigh in

As the digital economy surges forward, the promise of stablecoins as a pivotal tool in the financial landscape becomes increasingly apparent. However, amidst the excitement and innovation, countries in the Asia-Pacific region grapple with a complex web of regulations and compliance challenges.

In a recent webinar titled “The stablecoin landscape in APAC: Opportunities, regulatory developments, and addressing the compliance challenge,” industry experts dissected the world of stablecoin regulations in Asia-Pacific. David Carlisle, Vice President of Policy and Regulatory Affairs at Elliptic, moderated the panel and set the tone by acknowledging the dual nature of regulations.

“Regulation can be both a positive and a challenge when it comes to stablecoin innovation,” Carlisle observed, reflecting on the delicate balance required to foster innovation while mitigating risks.

He highlighted concerns raised by regulators, including consumer protection risks, money laundering, and financial stability. “Regulation can provide clarity for innovation, but impractical implementation can hinder progress,” Carlisle noted.

Hong Kong, Singapore, and Japan’s stablecoins landscape

Errol Bong, Global Head of Compliance and Legal Counsel at First Digital Trust, lauded Hong Kong’s proactive stance. “We welcome the regulation of stablecoins,” Bong affirmed, citing the Hong Kong Monetary Authority’s (HKMA) consultation paper issued in December. He emphasized the importance of regulation in restoring faith in stablecoins, especially after past failures like TerraUSD (UST).

“Many of the proposals coming from the Hong Kong Monetary Authority, such as full one-to-one backing of our stablecoin with liquid, low-risk reserve assets, align with our compliance-first approach,” Bong emphasized. He stressed the significance of maintaining one-to-one reserve asset backing and implementing robust governance and operational risk controls.

Chang Tze Ching, CEO of Bright Point International Digital Assets, offered insights into Singapore’s regulatory framework. She highlighted the Monetary Authority of Singapore‘s (MAS) policy to regulate single-currency stablecoins, emphasizing value stability, capital requirements, and disclosure.

“Interoperability is going to be quite a big issue,” Chang noted, pointing out the challenge of navigating regulatory differences across jurisdictions. She emphasized the importance of due diligence on stablecoin issuers and maintaining secondary market liquidity.

Noritaka Okabe, CEO of JPYC, delved into Japan’s unique regulatory environment. “Japan is very positive about stablecoin,” Okabe affirmed, highlighting the distinction between digital assets and digital money-type stablecoins under the new Banking Act and Payment Service Act.

“We are now prepared to move forward and apply for a Funds Transfer Service Provider License,” Okabe revealed, reflecting Japan’s evolving regulatory landscape. He stressed the importance of compliance with Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) regulations for stablecoin issuers.

Clearing the murk: Insights from industry leaders

A recurring theme in the discussion was the challenge of balancing AML compliance with redemption requests. Bong emphasized the need for a harmonious balance between honoring redemption requests and stringent AML checks.

“Compliance with AML/CFT regulations is crucial,” Okabe reiterated, stressing the importance of regulatory compliance in building trust and ensuring stability in the stablecoin market.

Chang echoed similar sentiments, highlighting the importance of periodic reviews on liquidity and navigating regulatory uncertainty. “Keeping on top of the regulatory changes and licensing status is crucial,” she noted, emphasizing the need for flexibility and adaptability.

“We are looking at automation for at least the KYC [and] the AML checks because transactions can be quite voluminous and it doesn’t make sense to do this one by one,” she added.

Exploring the coexistence: Stablecoins and CBDCs

Addressing the pivotal question of whether stablecoins and central bank digital currency (CBDC) can coexist, Bong offered an affirmative perspective. He highlighted the potential synergy between CBDCs and stablecoins and emphasized that such integration could bolster CBDCs while instilling confidence in stablecoin regulators.

“I think CBDCs would be a great reserve asset for stablecoin issuers to invest their funds. I think that would not only boost the CBDC but also make the regulator of the stablecoin issuers more comfortable. So they definitely can coexist,” Bong said.

Chang echoed the sentiment that stablecoins and CBDCs serve distinct market segments. She emphasized the flexibility and utility of stablecoins, particularly in settlements where specific currencies are preferred. However, she noted that not all countries might rush to adopt CBDCs, leaving room for stablecoins to continue playing a crucial role.

“Although I think some countries are starting to experiment and issue CBDCs, not all countries are actually jumping into that bandwagon. So realistically, it might be sort of done by some and not all,” she said.

Meanwhile, Okabe, concurred with the notion that stablecoins and CBDCs would coexist

but highlighted their differences. He distinguished CBDCs as state-issued currencies and stablecoins as primarily privately issued currencies, noting the stability and safety aspects of CBDCs.

Striking a balance between innovation and compliance

As APAC countries navigate the complex landscape of stablecoin regulations, industry stakeholders must tread carefully, balancing innovation and compliance. With regulatory frameworks evolving rapidly, vigilance and adaptability are paramount to fostering a robust and sustainable stablecoin ecosystem in the region.