Hong Kong’s government is taking significant steps to regulate stablecoins with a public consultation period set from December 27, 2023, to February 29, 2024. The Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) have jointly released a consultation paper outlining legislative proposals for overseeing stablecoin issuers. Recognizing the vital role of stablecoins in the Web3 and crypto asset (VA) ecosystem, as well as the increasing integration of traditional financial systems with crypto asset markets, the government finds it necessary to introduce a regulatory framework for fiat-referenced stablecoin (FRS) issuers.
The proposed regime aims to manage potential monetary and financial stability risks while creating transparent and appropriate guidelines to cope with the growing prevalence of crypto assets. The legislative proposal includes feedback from the market, responses to the “Discussion Paper on Crypto Assets and Stablecoins” published by HKMA last year, ongoing stakeholder engagements, local market conditions, and international standards. Key features of the proposal include:
– Licensing Regime: Introducing a new law to implement a licensing regime and mandating all stablecoin issuers that meet certain conditions to obtain a license from the Monetary Authority (MA).
– Individual Investor Restrictions: Mandating that stablecoins can only be offered by certain licensed institutions and only MA-licensed stablecoins can be presented to individual investors.
– Advertising Bans: Prohibiting the advertisement of stablecoin issuance by unlicensed entities or unspecified licensed institutions offering stablecoins.
– Adjustable Parameters: Granting authorities the power to adjust stablecoin parameters and operations in accordance with the rapidly evolving crypto market.
– Transitional Arrangements: Providing a transition arrangement to facilitate the implementation of the regulatory regime.
In addition to legislative proposals, HKMA will proceed with a legal framework to convey audit expectations, offer compliance guidance, and collect feedback from organizations genuinely interested in issuing FRS in Hong Kong. This initiative aims to ensure that the proposed regulatory regime is practical and aligns with market needs. The Financial Secretary Christopher Hui emphasized the importance of these regulatory measures in fostering the development of the Web3 ecosystem in Hong Kong. HKMA Chief Executive Eddie Yue echoed this sentiment, highlighting the significance of a regulatory stance while supporting financial innovation.