The Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) today (December 12) jointly released a public consultation paper to collect views on the legislative proposals on the regulation of stablecoin issuers.
In response to the important role of stablecoins in the Web3 and virtual asset ecosystem, and the increasingly close connection between the traditional financial system and the virtual asset market, the government believes that it is necessary to establish a regulatory system for issuers of fiat stablecoins. As virtual assets become more popular, regulating fiat stablecoin issuers in a risk-based and flexible manner can appropriately manage potential monetary and financial stability risks and provide transparent and appropriate regulations.
The legislative proposals have taken into account the market and public opinions collected in the Discussion Paper on Crypto-Assets and Stablecoins (Note 1) published by the HKMA last year, ongoing discussions with stakeholders, local market conditions and needs, and relevant international standards. The key points are as follows:
Implement a licensing system by introducing new legislation, requiring all eligible fiat stablecoin issuers (Note 2) to obtain a license issued by the Monetary Authority;
It stipulates that only designated licensed institutions (Note 3) can provide services for purchasing fiat currency stablecoins, and only fiat currency stablecoins issued by licensed issuers can be sold to retail investors;
Prohibited Promotion:
(i) a fiat stablecoin issuance by an unlicensed issuer; or
(ii) services for purchasing legal tender stablecoins provided by non-designated licensed institutions;
Giving authorities the necessary powers to adjust the scope of regulated stablecoins and activities in response to rapid changes in virtual asset markets; and
Provide transitional arrangements to facilitate the smooth implementation of the regulatory regime.
The HKMA will also launch a "sandbox" arrangement to convey regulatory expectations and provide compliance guidance to issuers who intend to and have concrete plans to issue fiat stablecoins in Hong Kong, while collecting their opinions on the proposed regulatory requirements to facilitate the implementation of the subsequent regulatory system and ensure that the system is in line with regulatory objectives. Details of the "sandbox" will be announced separately.
Secretary for Finance and the Treasury, Mr Hui Ching-yu, said: “With the implementation of the licensing regime for virtual asset trading platforms in June this year, the legislative proposal to regulate fiat stablecoin issuers is another important step to promote the development of Hong Kong’s Web3 ecosystem. The implementation of the relevant licensing, regulatory and enforcement arrangements can properly manage the actual and potential risks associated with the development of stablecoins in Hong Kong and be consistent with international standards.”
HKMA Chief Executive Eddie Yue said: “While we support financial innovation, we also believe that necessary regulatory limits and standards need to be established to promote the long-term, sustainable and responsible development of the virtual asset ecosystem. Therefore, we will launch a ‘sandbox’ arrangement while launching a public consultation, as a channel for the HKMA to exchange views with market participants who are interested in launching stablecoin issuance business in Hong Kong.