Author: 01 Yuan Universe

On December 27, 2024, the People's Bank of China released the "Financial Stability Report (2024)" (referred to as the "Report") . The report elaborates on the field of crypto-assets in many places, focusing on the supervision of crypto-assets.

Since the announcement on the development of the virtual asset market in October 2022, the development and regulatory system of Hong Kong’s crypto sub-market have attracted much attention. In the "Report", a special paragraph is used to briefly describe Hong Kong's crypto-asset regulatory model.

In the third part of "Chapter 3 Non-bank Institutions and Others" "Other Industries and Emerging Risks", the first focus is "Crypto-Assets" ".

3. Other industries and emerging risks

(1) Cryptoassets

Regulatory authorities in various countries continue to enhance the supervision of crypto assets.

After the crypto asset market experienced shocks due to a series of risk events in 2022, prices and trading volumes rebounded significantly in 2023. At the end of the year, the global market value of crypto assets reached US$1.55 trillion. A year-on-year increase of 10.71%. In view of the spillover risks that crypto-assets may have on the stability of the financial system, regulatory authorities in various countries have continued to increase the supervision of crypto-assets. At present, 51 countries and regions around the world have introduced bans on crypto-assets, and some economies have adjusted their original laws or restructured them. Legislative norms. The United States regulates crypto asset issuers who violate the Securities Act based on existing regulatory regulations. The U.S. Securities and Exchange Commission (SEC) rejected more than 20 spot Bitcoin ETF applications from 2018 to 2023. After approving the listing of Bitcoin spot ETFs in January 2024, the Chairman of the SEC stated that this does not mean that the SEC has approved or recognized Bitcoin products, and investors should still be cautious about the risks associated with Bitcoin and products whose value is linked to crypto assets; The European Union approved the "Crypto-Asset Market Supervision Act", establishing the world's first complete and clear regulatory framework for virtual assets. The bill is scheduled to be implemented in 20 It was officially implemented at the end of 2024; the UK accelerated the pace of virtual asset legislation and promulgated the "Financial Services and Markets Act", bringing crypto assets into the regulatory scope of the act; Singapore released the "Stablecoin Regulatory Framework", clarifying the scope and issuers of regulated stablecoins. Conditions; Japan has enacted the "Funds Settlement Act", which limits the issuers of stable coins to institutions such as licensed banks, registered transfer agencies, and trust companies.

Hong Kong is actively exploring crypto asset license management.

Hong Kong divides virtual assets into two categories for supervision, namely securitized financial assets and non-securitized financial assets. It implements a unique "dual license" system for virtual asset trading platform operators, that is, "security tokens" are applicable to the Securities and Exchange Commission. Futures Ordinance Regulation and Licensing System, “Non-Security Tokens” It is applicable to the supervision and licensing system of the "Regulations on Combating Money Laundering". Institutions engaged in virtual asset business must apply for a registration license from the relevant regulatory authorities before operating. At the same time, large financial institutions such as HSBC and Standard Chartered Bank are required to include crypto asset exchanges as daily customers. Regulatory scope

In the first part of "Chapter 5 Macro-prudential Management" "International Financial Regulatory Reform and Implementation Progress", the "Report" mentioned the Basel Committee on Banking Supervision (BCBS)'s review of crypto assets Risk concerns, the regulatory roadmap of the IMF and FSB, and a column explaining "The Financial Stability Board releases the international regulatory framework for crypto assets"

1. International financial regulatory reform and implementation progress

(1) Promote the improvement of regulatory rules in the global banking industry

The Basel Committee on Banking Supervision (BCBS) continues to monitor and assess risks in the global banking industry and promote the comprehensive and consistent implementation of Basel III. First, it regularly collects and evaluates the implementation status of Basel III among member economies. At present, about 1/3 of the member economies have implemented all or most of the rules of Basel III, 2/3 of the member economies plan to implement it by the end of 2024, and the other economies will implement it in 2020. It will be implemented in 25 years. The second is to analyze the causes of risk events in the European and American banking industries in 2023, summarize the experience and lessons of risk response, and publish a special report. The third is to focus on new risks such as crypto assets, climate-related financial risks and digital fraud. Published consultation drafts on climate-related financial risk information disclosure framework, bank crypto-asset risk exposure standards, and the impact of digital fraud on banking industry supervision and financial stability.

(6) Improving the international regulatory framework for crypto-assets

In recent years, crypto-asset activities have become increasingly complex and the market has become more volatile. . Overall, the correlation between crypto-asset activities and systemically important financial institutions, core financial markets, and market infrastructure is limited. However, as the application scenarios of crypto-assets increase in payment and retail investment, crypto-assets may become more popular in some economies. Initiate risks. FSB and relatedThe standard-setting bodies jointly developed a global regulatory framework for crypto-assets to guide regulatory authorities in responding to financial stability risks related to crypto-assets based on the principle of "same activities, same risks, same supervision". The IMF and FSB have developed a supervisory roadmap to identify macroeconomic and financial stability risks in response to cryptoassets. The roadmap sorts out the work related to the implementation of the crypto-asset regulatory framework, aiming to promote global information sharing and cooperation and fill the data gaps required for the rapid changes in the crypto-asset ecosystem.

Column 16: Financial Stability Board releases

International regulatory framework for crypto assets

In July 2023, the FSB released an international regulatory framework for crypto-assets, proposing high-level regulatory recommendations for crypto-assets and "global stablecoins" (Note 1), aiming to improve the global consistency of regulatory methods for the crypto-asset industry. Reduce regulatory loopholes, prevent regulatory arbitrage, and effectively prevent financial risks.

1. Two general principles of regulatory recommendations

The first is "same business, same risk" , same supervision” principle. If crypto-assets and "global stablecoin" businesses have the same economic functions as traditional financial businesses and are accompanied by the same types of financial risks, they should comply with the same regulatory requirements.

The second is the principle of flexibility. Regulatory authorities in each economy can apply existing laws and regulations to the crypto-asset industry, or formulate new laws and regulations to implement relevant regulatory recommendations.

The third is the principle of technology neutrality. Supervisory authorities in each economy should regulate crypto-asset businesses based on their economic functions and risk characteristics, rather than their underlying technology.

2. Contents of regulatory recommendations

The two regulatory recommendations target regulatory authorities and crypto asset issuance Parties and service providers (Note 2) have made specific requirements.

(1) "High-Level Recommendations on Monitoring, Supervision and Supervision of Crypto-Asset Businesses and Markets" (CA Recommendations)

CA recommendations include a total of 9 high-level recommendations.

1. Supervisory powers and tools. Supervisory authorities should have appropriate supervisory powers, tools and sufficientresources to supervise crypto assets and effectively enforce relevant laws and regulations.

2. Comprehensive supervision. Supervisory authorities should implement comprehensive supervision commensurate with the risks of crypto assets in accordance with the principle of “same business, same risks, same supervision”. Such as formulating regulations that match their risks, scale, complexity and systemic importance; assessing whether current regulatory measures can cope with the financial stability risks caused by crypto-assets, and expanding or adjusting the scope of supervision as appropriate; unifying the supervision of crypto-asset markets and traditional financial markets standards to fully protect the interests of all parties involved.

3. Cross-border cooperation, coordination and information sharing. In view of the cross-border nature of crypto-assets, regulatory authorities should fully consider their spillover risks, promote efficient external communication, information sharing and consultation, and promote regulatory consistency.

4. Governance framework. Crypto-asset issuers and service providers should develop and disclose comprehensive governance frameworks that are commensurate with their risks, scale, complexity and systemic importance and the financial stability risks they may pose, with clear accountability mechanisms. Have procedures in place to identify, address and manage conflicts of interest.

5. Risk management. Crypto-asset issuers and service providers should establish an effective risk management framework that can identify, measure, evaluate, monitor, report and manage all major risks; have reputable management that can effectively supervise compliance issues; Establish contingency plans and business continuity plans (BCP), comply with the relevant anti-money laundering requirements of the Financial Action Task Force (FATF), protect customer assets and reduce the risk of customer assets being damaged, misused or unable to be paid on time.

6. Data management. Cryptoasset issuers and service providers should establish a comprehensive data management system: to ensure the integrity and security of data and comply with relevant laws and regulations on data security; to promptly correct erroneous data to ensure reliable data quality; to be able to report comprehensively, timely, accurately and continuously Relevant data information; supports cross-economy data sharing and improves public understanding of crypto assets.

7. Information disclosure. Cryptoasset issuers and service providers should fully disclose information. The information disclosed includes necessary information such as operations, transactions, management and product risk characteristics; custody relationship terms, safeguards for customer assets and custodian bankruptcy risks; and major technical risks, such as network security risks and environmental climate risks.

8. Address financial stability risks arising from the connection between the crypto-asset ecosystem and the financial system.risk. Supervisory authorities should effectively monitor the interconnections within the crypto-asset ecosystem and between the crypto-asset ecosystem and other financial systems, and identify and resolve potential financial stability risks.

9. Comprehensive supervision of multi-functional crypto asset service providers. Supervisory authorities should require service providers to build an organizational management system that is consistent with their overall strategy and risk profile; when service providers fail to comply with existing regulations or have serious conflicts of interest, they should take effective measures in accordance with the law; closely guard against concentration risks and related transactions Risks, additional prudential supervision requirements should be formulated when necessary; cross-border service providers should be required to share information to prevent risks from spreading overseas.

(2) "High-Level Recommendations on the Supervision of "Global Stablecoins"" (GSC Recommendations)

The GSC recommendations include a total of 10 high-level recommendations. In addition to the 7 requirements similar to the CA recommendations on regulatory power, governance framework, risk management, etc., 3 separate recommendations are also proposed.

1. Recovery and disposal plan. “Global stablecoins” should develop appropriate recovery and resolution plans to support orderly liquidation or resolution within a legal framework and ensure that critical functions and activities can be restored or continued to operate.

2. Redemption rights, stability and prudential requirements. Users should be provided with strong legal claim rights or protection against the issuer or underlying reserve assets of "global stablecoins" and ensure timely redemption: explain the redemption procedures, redemption fees and claims to users, including under pressure How to ensure smooth redemption under this scenario; there should be reserve assets equal to the amount of stable coins in circulation, and the reserve assets should be composed of high-quality and highly liquid assets that are unsecured, easy to liquidate, and have no loss. When an issuer becomes insolvent, ownership of reserve assets should be protected; prudential requirements (including capital and liquidity requirements) should be adhered to; and sufficient liquidity should be available to deal with outflows.

3. Supervision requirements before operation. "Global stablecoins" should comply with the market access requirements (such as licenses or registrations) of the host economy before operation, and build the necessary products and systems to adapt to new regulatory requirements.

3. Work progress and future prospects

Follow up the implementation status of members. Track the major market and regulatory developments since the issuance of regulatory recommendations, and summarize the implementation progress, experience, practices, and problems and challenges faced by FSB members’ high-level regulatory recommendations for crypto assets and “global stablecoins.”

Evaluate the implementation effects of regulatory recommendations. Before the end of 2025, cooperate with relevant international organizations to evaluate the implementation of regulatory recommendations by member economies, ensure comprehensive and consistent implementation of regulatory recommendations, and determine whether it is necessary to update the recommendations.

Continue to study and improve supervision. Study the potential financial risks of multi-functional crypto asset service providers and evaluate whether additional supervision is needed based on the potential impact.

Expand the scope of implementation and monitoring. Take measures together with relevant standard-setting bodies and other international organizations to promote the effective implementation of regulatory recommendations in non-FSB members and reduce regulatory arbitrage risks. Invite non-FSBs with significant cross-border crypto asset businesses Member economies join FSB-related working groups to expand the scope of cross-border monitoring of crypto-assets

In "Chapter 5." In the second part "Practice of Major Developed Economies" of "Macro-Prudential Management", the "Report" elaborates on how the United States "responds to risks related to crypto assets" in improving the financial regulatory system.

2. Practice in major developed economies

(1) United States

Improve the financial regulatory system. First, maintain the resilience of the banking system and respond to systemic financial risks. The U.S. Department of the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) have taken measures such as citing systemic risk exceptions to properly handle regional Banking risks. During this period, the Federal Reserve established the Bank Term Financing Program (BTFP) to provide liquidity support to prevent risks from spreading in the financial system. The second is to manage risks related to artificial intelligence (AI). The US Congress pointed out that the application of artificial intelligence in financial services. Has become an emerging vulnerability in the financial system in 2023, the United States. The National Institute of Standards and Technology (NIST) released the Artificial Intelligence Risk Management Framework as a non-mandatory guidance document to discuss AI-related risks and management. The third is to deal with risks related to crypto assets. In 2023, the Federal Reserve and the U.S. Office of the Comptroller of the Currency (OCC). ) and the FDIC jointly issued a statement on the management of crypto-asset risks and crypto-asset market liquidity risks in banking institutions. Fourth, addressing climate change-related financial risks. The Federal Reserve, OCC and FDIC jointly issued a statement on the management of climate-related financial risks for large financial institutions. Principles.

Notes:

1: Global Stablecoins: A stablecoin that is widely used in multiple economies and may be systemically important in one or more economies.

2: Crypto-asset Issuers: Entities and individuals who create new crypto-assets in a centralized network. Crypto-asset Service Providers: individuals and entities that carry out crypto-asset trading, lending, custody, market making, wallets and other businesses.