The Hong Kong Legislative Council has passed the Stablecoins Bill, establishing a licensing regime for fiat-referenced stablecoins (FRS) issuers in the jurisdiction, which the local government says will further enhance its framework for virtual asset activities.
Going forward, the new law bring in the Stablecoins Ordinance, which means people or businesses issuing FRS claiming to maintain a stable value with reference to HK dollars, either insight or outside Hong Kong, will need to obtain a licence from the Hong Kong Monetary Authority.
The Authority stated: "The relevant persons must satisfy the requirements in areas such as reserve asset management and redemption, including proper segregation of client assets, maintaining a robust stabilisation mechanism, and processing stablecoin holders’ requests for redemption at par value with reasonable conditions."
"The relevant persons must also comply with a range of requirements, including those on anti-money laundering and counter-terrorist financing, risk management, disclosure and auditing, and fitness and propriety. The MA will conduct further consultations on the detailed regulatory requirements of the regime in due course."
A key objective of the new law is improved protection for consumers and investors: "...only specified licensed institutions may offer an FRS in Hong Kong, and only an FRS issued by a licensed issuer may be offered to a retail investor. Additionally, to prevent fraud and scams, at all times (including the six-month non-contravention period), only advertisements of licensed FRS issuance are allowed. Members of the public are advised to take note of the above and exercise care when receiving FRS-related advertising materials or messages."
Christopher Hui, Secretary for Financial Services and the Treasury, said: "The Ordinance 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.”
Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, said the new rules have "established a risk-based, pragmatic, and flexible regulatory regime. 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 Ordinance is expected to come into effect this year, to allow sufficient time for the industry to understand the requirements under the licensing regime. The regime also provides for a transitional arrangement to facilitate the industry in applying for a licence and making suitable business arrangements in accordance with the regulatory regime.
