Hong Kong Regulators Propose Licenses for Stablecoin Issuers

Jimmy Aki
Last Updated:

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.

Hong Kong’s financial authorities have released a public consultation paper that details a legislative proposal for regulating stablecoin issuers. The aim is to ensure the region’s virtual asset ecosystem is developed securely to protect investors.

Fiat-Referenced Stablecoins Will be Accepted Amidst License Approval

On December 27, the Hong Kong Monetary Authority (HKMA) and the Financial Services and the Treasury Bureau (FSTB) released a consultation paper outlining new policies that mandate issuers to obtain a local license for the sale of stablecoins to investors.

This initiative is prompted by the escalating prominence of stablecoins within the Web3 and virtual asset (VA) ecosystems, coupled with the increasing interconnection between traditional financial systems and VA markets.

As outlined in the 30-page consultation paper, fiat-referenced stablecoins (FRS) issuers are required to fulfill regulatory conditions to secure a license from the Monetary Authority (MA).

Furthermore, FRS can only be offered by specified licensed entities, and only those licensed by the MA are allowed to extend their services to retail investors.

To uphold the integrity of the regulatory landscape, the proposed policy includes a ban on the advertising of FRS issuance by unlicensed entities and the non-specified licensed entities’ offering of FRS.

Other significant points in the proposed legislative framework include empowering financial authorities with the necessary tools to adjust the parameters of stablecoins and related activities.

Additionally, stablecoin issuers are required to establish a registered office in Hong Kong with a chief executive, senior management team, and key personnel.

The significant regulatory development stems from the “Discussion Paper on Crypto-assets and Stablecoins’ released by the HKMA in January 2022, which aimed to gather insights and feedback from the public and market participants.

Debut of the Sandbox Arrangement Structure

The Hong Kong Monetary Authority (HKMA) has proposed a regulatory framework for stablecoins and has also introduced a sandbox arrangement.

The sandbox initiative aims to communicate supervisory expectations, provide guidance on compliance, and provide feedback from entities genuinely interested in and equipped with a reasonable plan for issuing FRS in Hong Kong.

The primary goal is to ensure that the proposed regulatory requirements align with the industry’s needs, fostering a robust and adaptable framework.

Christopher Hui, the FSTB Secretary, stressed the importance of these measures. He highlighted that the licensing regime for VA trading platforms introduced earlier this year and the current legislative proposal for FRS regulation collectively contribute to the development of the Web3 ecosystem in Hong Kong.

By establishing licensing, supervisory, and enforcement parameters, Hong Kong aims to bring its approach in line with international standards and mitigate risks associated with stablecoin development.

Eddie Yue, the Chief Executive of the HKMA, also expressed support for financial innovation and underscored the necessity of regulatory frameworks to facilitate responsible development in the virtual asset ecosystem.

However, the consultation is underway and will last until February 29, 2024, providing an extensive period for constructive engagement between the HKMA and market players.

Crypto industry players and the public are encouraged to contribute their insights and opinions during the consultation period, with the consultation paper accessible on the FSTB and HKMA websites.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.