Hong Kong Rules Limit Stablecoin Derivative Trading: DBS CEO

Hong Kong’s stablecoin regulatory framework limits their use for derivatives trading on blockchain networks, according to Sebastian Paredes, CEO of DBS Hong Kong.

According to a Friday report by local news outlet The Standard, Paredes said that Hong Kong regulations on stablecoin Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements will significantly restrict their use for onchain derivatives trading. He said the bank will monitor developments, but focus instead on building broader stablecoin capabilities in Hong Kong.

His comments followed the rollout of Hong Kong’s new stablecoin rules on Aug. 1. The rules immediately criminalized the promotion of unlicensed stablecoins and established a public registry of authorized issuers.

Others have also criticized Hong Kong’s stablecoin rules as overly harsh. When the framework was introduced, stablecoin companies operating in Hong Kong posted double-digit losses, attributed to stricter rules than expected.

Related: Animoca and Standard Chartered form stablecoin venture in Hong Kong

DBS is not new to crypto

The local DBS branch is a major bank in Hong Kong and holds nearly 492 billion Hong Kong dollars ($63.2 billion) as of last year, according to regulatory filings. DBS is also the largest bank in Southeast Asia by assets, totaling $842 billion Singapore dollars ($620 billion).

The bank has long been involved with blockchain technology and the crypto industry. Earlier this month, DBS, Franklin Templeton and Ripple joined forces to launch tokenized trading and lending services for institutional investors, leveraging the XRP Ledger.

In late August, DBS also decided to expand its digital asset offerings with the launch of tokenized structured notes on the Ethereum blockchain. The bank is no stranger to stablecoins, being responsible for managing the US dollar reserve of the Global Dollar (USDG).

In late 2024, DBS also introduced a new suite of blockchain-powered services for its institutional clients and announced the offering of over-the-counter crypto options. The bank also launched a solution last year that uses blockchain technology to streamline the disbursement of government grants.

Related: Asia’s OSL Group raises $300M for stablecoin and global expansion

Hong Kong’s stablecoin hiccups

Hong Kong was buzzing with stablecoin activity both before and after the local regulators adopted the new framework. When the rules, strict as they were, came into force, the Hong Kong Securities and Futures Commission (SFC) official warned that the introduction of the new local stablecoin regulatory framework had increased the risk of fraud.

The statement was largely motivated by the speculative frenzy around companies that announced their interest in obtaining a stablecoin license. Reports that HSBC and ICBC considered applying for stablecoin licenses were followed by suggestions that the firms backed away under pressure from Chinese authorities.

In early August, Chinese authorities instructed local firms to cease publishing research or holding seminars related to stablecoins.

This was followed by a since-removed report from major local financial news outlet Caixin that mainland Chinese firms operating in Hong Kong may be forced to withdraw from cryptocurrency-related activities.

Magazine: China mocks US crypto policies, Telegram’s new dark markets: Asia Express