Hong Kong warns of fraud risk after new stablecoin rules

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A Hong Kong SFC official warned that the new local stablecoin framework has fueled fraud risks, and urged investors to remain cautious amid hype-driven speculation.

Hong Kong warns of fraud risk after new stablecoin rules

A Hong Kong Securities and Futures Commission (SFC) official warned that the introduction of the new local stablecoin regulatory framework has increased the risk of fraud.

According to an Aug. 18 report by Chinese financial news outlet Zhitongcaijing, Ye Zhiheng, executive director of the intermediaries division at the SFC, said that fraud risks have increased with the recent introduction of stablecoin regulations. He urged investors to exercise caution and avoid making irrational investment decisions driven by market hype or price momentum.

Ye’s remarks followed stablecoin companies operating in Hong Kong posting double-digit losses on Aug. 1, just after the new stablecoin regulation came into force. Analysts at the time described the sell-off as a healthy correction, as the requirements for stablecoin issuers proved to be more stringent than expected.

Still, Ye said that some companies saw their share prices rise simply by disclosing plans to apply for a stablecoin license.

Hong Kong authorities warn against stablecoin speculation

Last Thursday, the SFC and the Hong Kong Monetary Authority (HKMA) jointly issued a statement on recent market movements related to stablecoins. The regulators pointed to “recent abrupt market movements linked to the stablecoin concept” of companies.

“These movements appear to follow corporate announcements, news reports, social media posts or speculations regarding plans to apply for stablecoin issuer licence, engage in related activities or explore the feasibility of such initiatives in Hong Kong,” the announcement said.

The SFC also said it will closely monitor trading activities in Hong Kong. The regulator plans to “take stringent actions against any manipulative or deceptive practices that could compromise the integrity of the market.”

Crypto is a high priority for Hong Kong regulators

The warnings come as Hong Kong begins enforcing its Stablecoin Ordinance, which took effect Aug. 1 and introduced a six-month transition period for compliance.

The Stablecoin Ordinance effectively criminalizes the offering or promotion of unlicensed fiat-referenced stablecoins to retail investors. Those measures also followed local authorities finalizing their regulatory framework for stablecoin issuers and launching a dedicated public license registry.

Last week, the SFC also issued immediately effective guidance on cryptocurrency custody standards, introducing sweeping security requirements and a ban on smart contracts in cold wallet implementations, a rule that could conflict with current practices at several leading firms.