Hong Kong Unveils Stablecoin Regulatory Framework, Prepares for Legislative Action
Hong Kong’s financial regulators have taken a significant step towards implementing a comprehensive regulatory regime for fiat-referenced stablecoins (FRS) in the city. The Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) jointly released the consultation conclusions on their legislative proposal, paving the way for a new licensing system for stablecoin issuers.
The two-month public consultation, which concluded in February, garnered 108 submissions from various stakeholders, including market participants, industry associations, and professional organizations. The majority of respondents endorsed the need for a regulatory framework to manage potential risks associated with stablecoins and provide transparent oversight.
Key aspects of the proposed regulatory regime include:
- Licensing requirement: All FRS issuers operating in Hong Kong or actively marketing to Hong Kong users will need to obtain a license from the HKMA.
- Reserve assets: Stablecoins must be fully backed by high-quality, liquid assets at all times. The HKMA clarified that acceptable reserve assets include cash, bank deposits, and certain high-quality marketable securities.
- Capital requirements: The minimum capital requirement has been adjusted to 1% of the stablecoin issuance or HKD 25 million, whichever is greater.
- Redemption and disclosure: Issuers must process redemption requests within one business day under normal circumstances and provide regular public disclosures on reserve assets.
- Prohibition on interest: Stablecoins cannot pay interest to holders, although certain marketing incentives may be permitted.
Christopher Hui, Secretary for Financial Services and the Treasury, emphasized that the new regime would “further strengthen the VA regulatory framework in Hong Kong in line with international standards.” HKMA Chief Executive Eddie Yue added that a well-regulated environment would foster the “sustainable and responsible development of the stablecoin ecosystem in Hong Kong.”
The FSTB and HKMA are now finalizing the legislative proposal, incorporating feedback from the consultation. They aim to introduce a bill to the Legislative Council later this year. Concurrently, the HKMA is processing applications for its stablecoin issuer sandbox, with participants to be announced soon.
This move aligns Hong Kong with other major jurisdictions developing stablecoin regulations, such as the European Union’s recently enacted MiCA regime. As Hong Kong continues to position itself as a leading crypto hub, the implementation of this regulatory framework is expected to provide clarity and confidence to both issuers and users in the growing stablecoin market.
