Hong Kong Increases Regulation on Stablecoin Issuers

Fiat-referenced stablecoins (FRS) may be accepted and regulated in Hong Kong, but issuers will need to apply for a special local license.

One of the primary ideas presented in a consultation paper released on December 27 by the Hong Kong Monetary Authority (HKMA) and the Financial Services and the Treasury Bureau (FSTB) is this.

The deadline for consultations is February 29, 2024. A license from the HKMA is necessary for all businesses that "actively market their issuance of FRS to the public of Hong Kong," according to the proposed legislation, which also defines fiat-referenced stablecoins.

All circulating stablecoins must be fully backed by reserves "at least equal to the par value," reserve assets must be kept separate and secure, and disclosure and regular reporting are requirements for obtaining a HKMA license.

According to the document, algorithmic stablecoins will not be granted a license.

Issuers of stablecoins will also need to establish a registered office in Hong Kong and staff it with a chief executive, senior management group, and other essential staff members.

The Secretary for Financial Services and the Treasury, Christopher Hui, stated that the risks connected with the development of stablecoins could be suitably managed if the necessary licensing was obtained:

“With the implementation of the licensing regime for VA trading platforms from June this year, the legislative proposal to regulate FRS is another important measure facilitating Web3 ecosystem development in Hong Kong.”

The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) jointly stated in December that they were prepared to consider applications for the authorization of different funds, such as exchange-traded funds (ETFs) called Virtual Asset Spot (VA Spot ETFs), in addition to the current crypto futures ETFs.

The public consultation paper is "warmly welcomed," according to Ronald Iu, CEO of ZA Bank, one of the largest virtual banks in Hong Kong. He believes it will "strengthen" future regulatory framework, "providing greater security and fostering the development of the industry."

“This, in turn, will enhance the confidence of retail investors and contribute to establishing Hong Kong as a global hub for Web3."

Sources:

https://cointelegraph.com/news/hong-kong-oblige-stablecoin-issuers-obtain-license-consultation-paper

https://www.fstb.gov.hk/fsb/en/publication/consult/doc/Stablecoin_consultation_paper.pdf