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The Legislative Council has passed a stablecoins bill as part of a broader push to tighten oversight of crypto-assets that mirrors other international compliance rules.
The Stablecoins Ordinance compels any person or entity issuing a stablecoin linked to the value of fiat currency, either in Hong Kong or referencing the Hong Kong dollar abroad, to obtain a licence from the Hong Kong Monetary Authority (HKMA).
Hong Kong’s regime echoes that of Singapore, especially with its focus on issues such as risk management and reserve requirements, and appears to align with the stablecoin elements of the EU’s Markets in Crypto-Assets (MiCA) Regulation in terms of licensing and operational requirements.
Indeed, in a similar statement to that issued by EU officials at the time of MiCA being negotiated, Christopher Hui, the secretary for financial services and the Treasury, stated that the new regime “adheres to the ‘same activity, same risks, same regulation’ principle, with a focus on a risk-based approach to promote a robust regulatory environment”.
“This is not only in line with international regulatory requirements, but also lays a solid foundation for Hong Kong’s virtual asset market, which, in turn, promotes the sustainable development of the industry, protects users’ rights and interests, and strengthens Hong Kong’s status as an international financial centre,” the government official said.
Regulating the crypto ecosystem
The new regime aims to safeguard financial stability, while at the same time build confidence among retail investors and market participants in the jurisdiction’s emerging crypto-asset ecosystem.
To qualify for a licence, stablecoin issuers will need to meet a range of requirements covering reserve asset management, redemption mechanisms, anti-money laundering and counter-terrorist financing (AML/CTF) controls, risk management and corporate governance.
This includes maintaining proper segregation of client assets and guaranteeing that redemption of stablecoins can be carried out at par value under reasonable conditions.
In an additional bid to protect retail investors, only licensed institutions will be permitted to issue or offer fiat-referenced stablecoins to the public in Hong Kong.
The bill also places tight restrictions on marketing, meaning that only advertisements for licensed stablecoin offerings will be allowed, even during the initial six-month non-contravention period.
The ordinance is expected to come into force later this year, meaning that the financial services industry has time to adjust and apply for licences under the new framework.
Transitional arrangements will also be put in place to ease the implementation process.
“The Ordinance has established a risk-based, pragmatic, and flexible regulatory regime,” said Eddie Yue, the HKMA’s chief executive.
“We believe that a robust and fit-for-purpose regulatory environment would provide favourable conditions to support the healthy, responsible, and sustainable development of Hong Kong’s stablecoin and the broader digital asset ecosystem.”
The legislation marks the latest step in Hong Kong’s evolving regulatory approach to crypto-assets.
With licensing frameworks for both trading platforms and stablecoin issuers now in place, the government said it will soon begin consultations on extending regulation to crypto-asset over-the-counter trading and custodian services, suggesting that a second policy statement on the development of crypto-assets is in the pipeline.
