The government of the Hong Kong Special Administrative Region has welcomed the passing of the Stablecoins Bill by the Legislative Council (LegCo) on Wednesday.
It is expected to enhance Hong Kong’s regulatory framework on virtual-asset (VA) activities by establishing a licensing regime for fiat-referenced stablecoins (FRS) issuers in Hong Kong.
The administration adhered to the “same activity, same risks, same regulation” principle, with a focus on a risk-based approach in drafting the ordinance.
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“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 center,” said Secretary for Financial Services and the Treasury Christopher Hui Ching-yi.
“We believe that a robust and fit-for-purpose regulatory environment would provide favorable conditions to support the healthy, responsible, and sustainable development of Hong Kong’s stablecoin and the broader digital asset ecosystem,” Hong Kong Monetary Authority Chief Executive Eddie Yue Wai-man added.
The ordinance is expected to come into effect this year, and a transitional arrangement will be provided to facilitate the industry in applying for a license and making suitable business arrangements in accordance with the regulatory regime.
Upon implementation of the ordinance, any person who, in the course of business, issues an FRS in Hong Kong, or issues an FRS that purports to maintain a stable value with reference to Hong Kong dollars in or outside Hong Kong will need to obtain a license from HKMA.
The relevant persons must satisfy requirements in areas such as reserve asset management and redemption, including proper segregation of client assets, maintaining a robust stabilization mechanism, and processing stablecoin holders’ requests for redemption at par value with reasonable conditions.
They must also comply with other requirements, including those on anti-money laundering and counter-terrorist financing, risk management, disclosure and auditing, and fitness and propriety.
Tan Yueheng, the lawmaker representing the Election Committee, described the stablecoin regulatory legislation as marking the transition of Hong Kong’s crypto-finance ecosystem from “divergent growth” to “compliant innovation”.
“Hong Kong needs to attract global compliant issuers, asset management institutions and technology service providers to settle in the city through clear licensing rules,” Tan said. He added that financial regulators in Hong Kong should mull more on how to entice traditional banks to carry out stablecoin custody business, and promote the substantial connection between crypto assets and the real economy.
It is also very important to enhance the regional strategic value of the Hong Kong dollar stablecoin.
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“Looking ahead, for economic, trade and investment cooperation with emerging markets such as Southeast Asia and the Middle East, it can consider giving priority to promoting the Hong Kong dollar stablecoin as a cross-border settlement tool for completing fast and efficient settlement,” Tan noted.
By using the experience of the Hong Kong dollar stablecoin, it can empower the digital renminbi, and make Hong Kong a “test field” for the internationalization of the RMB in the field of stablecoins, Tan argued.
The government said it will soon launch consultations on VA over-the-counter and custodian services, and promulgate the second policy statement on the development of VAs.
