Produced by | Bailu Living Room
Author｜Bowen
Stablecoins have always been one of the most profitable businesses in the crypto industry. Take Tether as an example. In the first quarter of 2023 alone, it earned $15 billion.On December 12, the total market value of USDT exceeded US$20 billion. Tether has proved time and again that stablecoins will always be the core of the global crypto market.
The Hong Kong market is no exception. Coupled with the need for non-US dollar stablecoins to break its monopoly, the Hong Kong market urgently needs a more favorable regulatory environment to promoteIncenseHong Kong Stablecoinmarketdevelopment of.
On December 12, the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) jointly issued a public consultation document to collect opinions on legislative proposals on the regulation of stablecoin issuers.
The consultation document covers the Hong Kong government’s latest measures and legislative proposals on the regulatory approach to stablecoin issuance.It includes: the scope of stablecoin regulation, legislative methods, regulatory framework for fiat stablecoin issuers, custody and purchase services for fiat stablecoins, regulatory rights, violation regulations and sanctions, appeals, and transition measures.Solicit opinions from the SAR in all aspects to promote the implementation of stablecoin regulatory laws.
In this article, Bailu Living Room has comprehensively sorted out the contents of the consultation document for readers to help them better understand the regulatory direction of the Hong Kong government. At the same time, we look forward to the Hong Kong government's response to the opinions of all parties.
Key points:
The following is the content of the consultation document:
Overview of Hong Kong’s current regulatory framework
Under the coordination of the Treasury Department, financial regulators, including the HKMA and the SFC, are working closely to develop a comprehensive virtual asset regulatory framework with reference to applicable international standards to regulate various virtual asset-related activities.
According to international practice,Regulatory efforts will prioritize the main deposit/withdrawal channels within the virtual asset ecosystem。自立法会于2022年12月通过《2022年打击洗钱及恐怖分子资金筹集(修订)条例草案》后，《打击洗钱及恐怖分子资金筹集条例》下为虚拟资产服务提供者新设立的发牌制度于2023年6月1日生效。
Under this system, all virtual asset exchanges must be licensed and regulated by the SFC. The Treasury, the HKMA and the SFC will continue to work closely with stakeholders to improve the regulatory environment for virtual assets, including carefully considering the need to include other virtual asset-related activities in the regulatory scope.
As noted in the Conclusions Paper, a number of respondents noted that some stablecoin activities may overlap with other regulatory regimes in Hong Kong, in particular:
(i) the licensing regime for virtual asset service providers under the Anti-Money Laundering Ordinance, which is administered by the SFC; and
(ii) the stored value facility licensing regime under the Payment Systems and Stored Value Facilities Ordinance (Cap. 584) for which the HKMA is responsible.
With regard to the licensing regime for virtual asset service providers, the Treasury and the HKMA have been working with the SFC and other stakeholders in formulating the details of the regulatory regime for fiat stablecoin issuers to prevent regulatory arbitrage, identify and address overlaps or gaps between different regulatory regimes, and mitigate risks arising from different activities.
In terms of the licensing regime for stored value facilities, we note that some stablecoin arrangements (especially stablecoins used for payment) may be similar to stored value facilities to some extent. To ensure a clear regulatory scope, we propose that the definition of legal currency stablecoins will not include any stored value or payment facility deposit stored in a stored value facility, although in some cases, whether a digital form of value or its issuance constitutes a stored value facility as defined in the Payment Ordinance still requires relevant judgment based on relevant factors, such as the structure of the relevant entity or product, the relationship between the relevant parties and the operational details, which need to be considered based on the actual situation.
In addition, during the previous consultation, we also weighed whether to use existing laws or introduce new laws to implement the regulatory system. Given that the virtual asset market is changing rapidly and is very complex, we believe that it is appropriate to introduce new laws to implement the regulatory system for issuers of fiat stablecoins. In the future, the relevant laws may be added to the regulatory system for other aspects of the virtual asset market as needed.
Policy objectives and guiding principles for the proposed regulatory framework
The main policy objectives are as follows:
(a) developing appropriate safeguards to address potential risks to monetary and financial stability posed by fiat stablecoins;
(b) provide adequate protection for users of fiat stablecoins;
(c) developing a regulatory regime for issuers of fiat-denominated stablecoins that is appropriate and in line with international regulatory recommendations, so as to maintain Hong Kong’s status as an international financial centre; and
(d) provide a clear legal and regulatory environment to facilitate the sustainable and responsible development of the virtual asset ecosystem in Hong Kong.
In formulating our legislative proposals, we will follow the guiding principle of “same business, same risk, same regulation”. In addition, the proposed regulatory regime will:
(a) adopt a risk-based approach, giving priority to areas that pose higher actual, perceived or potential risks;
(b) be adaptable to evolving market developments and relevant international discussions;
(c) be proportionate to the risk, i.e. not impose a supervisory burden on the regulated institution that is excessive and disproportionate to the risk involved; and
(d) ensuring a level playing field and addressing potential regulatory arbitrage.
Coverage
Refer to the definitions currently adopted by international organizations and standard-setting organizations, as well as the mainstream vocabulary commonly used in the virtual asset market.We propose to define stablecoins as cryptographically protected digital forms of value that meet, but are not limited to, the following descriptions:
(a) expressed in terms of units of account or stores of economic value;
(b) is or is intended to be used as a medium of exchange accepted by the public for payment of goods or services, settlement of debts and/or investment;
(c) can be transferred, stored or traded by electronic means;
(d) uses a distributed ledger or similar technology that is not solely controlled by the Issuer; and
(e) any asset that is claimed or purports to maintain a stable value relative to a particular asset, group or basket of assets.
With reference to the regulatory scope of the existing relevant regulatory framework, we propose that the definition of "stablecoin" does not include deposits (including tokenized or digital deposits), certain securities or futures contracts (mainly authorized collective investment schemes and authorized structured products), any stored value or facility deposit stored in stored value facilities, digital legal tender issued by or on behalf of a central bank, and certain digital values for limited purposes.
As forFiat stablecoins are defined as stablecoins whose specific assets are single or multiple fiat currencies.As fiat stablecoins have the potential to develop into a generally accepted means of payment, they pose a more immediate risk to monetary and financial stability than other virtual assets or other types of stablecoins (such as commodity stablecoins). In view of this, the Treasury and the HKMA propose that the issuance of fiat stablecoins will become a regulated stablecoin activity under the proposed new rules.If applicable conditions are met, fiat stablecoin issuers will be required to obtain a license from the Monetary Authority.
Under the proposed regulatory regime,Regardless of the stabilization mechanism and related backing assets of the fiat stablecoin, all fiat stablecoin issuers will be subject to the same regulatory frameworkFor example, issuers of fiat stablecoins that derive their value through arbitrage or algorithms will also fall within the regulatory scope.
However, it will be extremely unlikely that issuers of such fiat stablecoins will be able to meet the relevant licensing criteria and conditions (especially those regarding reserve management) and obtain a license.
Given the rapidly changing market and regulatory environment for the virtual asset industry, there is a need to respond promptly to new risks to monetary and financial stability posed by the virtual asset industry and to comply with relevant international standards. In view of this, the Treasury and the HKMA intend to give the authorities the necessary powers to adjust the scope of regulated stablecoins and activities.
Legislative method
After weighing the options of introducing the proposed regulatory regime by amending the Anti-Money Laundering Ordinance, the Payments Ordinance and enacting new legislation, the Treasury and the HKMA proposed enacting new legislation based on the following considerations:
(a) Stablecoins and stored value facilities may have different characteristics. Therefore, it is more appropriate to enact separate legislation to regulate issuers of fiat currency stablecoins than to incorporate the relevant regulatory regime into the Payment Ordinance.
(b) It seems more appropriate to use new legislation to deal with an area that is still in its infancy, such as stablecoins. If necessary, the new legislation can also serve as a basis for expanding the regulatory regime to other virtual asset activities in the future.
It is now proposed to first bring fiat stablecoin issuers under the HKMA’s regulatory scope. As the market and international regulatory discussions continue to evolve, the Government will continue to work with other financial regulators to assess the risks of other virtual assets and activities and consider their need to be brought under regulation.
The Treasury and the HKMA also note that under the proposed regulatory regime for fiat currency stablecoin issuers, the regulated issuance activities may overlap with other financial regulatory regimes in Hong Kong. In order to avoid subjecting fiat currency stablecoin issuers to multiple regulatory regimes, it is now proposed that the issuance of fiat currency stablecoins by licensed issuers will be
Excluded from certain regulatory regimes, such as those applicable to securities (including collective investment schemes) and stored value facilities.
Regulatory framework for issuers of fiat stablecoins
Licensing system for fiat stablecoin issuers
It is proposed that under the new licensing regime for fiat stablecoin issuers, unless a company holds a licence granted by the Monetary Authority, no person shall:
(i) issuing or holding itself out as issuing fiat currency stablecoins in Hong Kong;
(ii) issuing or holding itself out as issuing a stablecoin that claims or purports to maintain a stable value relative to the Hong Kong dollar; or
(iii) actively promote the issuance of its fiat stablecoin to the Hong Kong public.
Licensing Criteria and Conditions
(a) Reserve Management and Stabilization Mechanism
Full reserve support:Fiat stablecoin issuers must ensure that the total value of the fiat stablecoin's reserve assets is at least equal to the face value of the fiat stablecoin in circulation at all times. Given the fundamental difficulty of maintaining a robust stability mechanism when issuing fiat stablecoins whose value is derived by arbitrage or algorithmically in the absence of valuable reserve assets, such issuers will not be licensed.
Investment restrictions:Reserve assets must be high quality, highly liquid and involve minimal market, credit and concentration risks. The currency of the reserve assets should correspond to the currency to which the fiat stablecoin is referenced, and appropriate flexibility will be allowed in individual cases approved by the Monetary Authority. When deciding on the allocation of reserve assets, the issuer of the fiat stablecoin should consider the liquidity needs of the relevant assets and how to ensure that such needs can be met when managing the reserve assets and making relevant investments.
The Monetary Authority must be able to ensure that the types and allocations of assets proposed by the fiat stablecoin issuer are appropriate. Therefore, the issuer needs to formulate an investment policy and review its investment policy as the fiat stablecoin business gradually develops.
Segregation and safekeeping of reserve assets:Fiat stablecoin issuers should establish effective trust arrangements to ensure that reserve assets are kept separate from other assets and used to meet redemption requests, as well as to ensure users' legal rights and priority claims to reserve assets in the event of the issuer's insolvency. Issuers must establish separate accounts with licensed banks or other custodians under arrangements satisfactory to the Monetary Authority to manage reserve assets. As part of internal control measures and procedures, issuers must establish effective internal control measures and procedures to protect reserve assets from operational risks (including the risk of theft, fraud and misappropriation).
Risk management and control procedures:The issuer of a fiat stablecoin must develop sound policies, guidelines and controls to properly manage all investment risks associated with the management of reserve assets and ensure that there are sufficient funds and liquid assets to meet redemption requests for circulating fiat stablecoins. The issuer must adopt comprehensive liquidity risk management measures, which clearly specify the strategies and implementation tools for dealing with large-scale redemptions (i.e. bank runs or liquidity pressure scenarios). The issuer should also conduct regular stress testing to monitor the adequacy and liquidity of reserve assets.
Disclosure and Reporting:Issuers of fiat stablecoins must disclose to the public on a regular basis the total amount of fiat stablecoins in circulation, the market value of their reserve assets and the composition of their reserve assets. After consulting the Monetary Authority, the issuer must appoint a qualified independent auditor to certify: (i) the composition and market value of its reserve assets; (ii) the denomination of fiat stablecoins in circulation; (iii) whether the reserve assets are sufficient to fully support the value of the fiat stablecoins in circulation and have sufficient liquidity as of the last business day of the certification period; and (iv) whether the conditions set by the Monetary Authority for the management of its reserve assets have been fully met. It is now recommended that issuers disclose the total amount of fiat stablecoins in circulation and the market value of their reserve assets at least daily, disclose the composition of their reserve assets at least weekly, and have the relevant certification conducted by a qualified independent auditor at least monthly.
Prohibition on interest payments:Any income or loss from the reserve assets, including but not limited to interest, dividends or capital gains or losses, belongs to the issuer. With reference to international regulatory practices, issuers of fiat stablecoins are not allowed to pay interest to users of fiat stablecoins.
Effective stabilization mechanism:Regardless of whether the specific operating procedures of the stabilization mechanism of the fiat currency stablecoin are executed by a third party, the issuer must bear the ultimate responsibility for the effective operation of the stabilization mechanism of the fiat currency stablecoin it issues.
(b) Redemption Request
Fiat stablecoin users should have the right to redeem fiat stablecoins at par from the fiat stablecoin issuer and have a claim on the reserve assets (and a claim on the issuer if the issuer fails to fulfill its redemption obligations).Redemption requests must be processed without unreasonable charges and within a reasonable time.The issuer must not impose unreasonable conditions on redemption (e.g. very high minimum threshold amounts). Redemption fees must be clearly communicated to users and should be proportionate and not so high as to discourage users from redeeming. The issuer must pay redemption requests in the fiat currency or currencies to which they refer.
When fiat stablecoin users are unable to redeem fiat stablecoins into one or more fiat currencies through other channels (for example, due to obstruction of intermediary or infrastructure operations), the issuer must ensure that redemption is provided directly to users at face value within a reasonable time.
Issuers must develop and maintain contingency plans to enable users to redeem fiat stablecoins in an orderly manner in the event that they are unable to fulfill redemption requests (including when the issuer’s license is suspended or revoked).
(c) Restrictions on business activities
The issuer of a fiat currency stablecoin must obtain the approval of the Monetary Authority before commencing any new business. The issuer must also conduct a risk assessment and prove that it has sufficient resources to invest in the issuance of a fiat currency stablecoin and maintain its operation, that the new business will not bring it additional risks, and that there are risk control measures to ensure that the new business activities will not affect its ability to perform its functions as an issuer.
The issuer may obtain approval,Carry out activities ancillary or incidental to the issuance of fiat currency stablecoins, such as providing wallet services for the fiat currency stablecoins it issues to make the issuance and redemption process more convenient.When providing such wallet services, issuers should formulate corresponding policies and procedures for the segregation and safekeeping of user assets, as well as the deposit and withdrawal of user assets.
For the avoidance of doubt,Issuers should not engage in money lending and financial intermediation activities, nor should they engage in other regulated activities such as those listed under the Securities and Futures Ordinance, the Mandatory Provident Fund Schemes Ordinance or the Insurance Ordinance.
(d) Having a physical company and office in Hong Kong
The fiat stablecoin issuer must be a company established under Hong Kong law and have a registered office in Hong Kong. Its CEO, senior management team and key personnel must be based in Hong Kong and exercise effective control over the issuance of its fiat stablecoin and related activities. This requirement will enable the Monetary Authority to effectively supervise such entities.
(e) Financial resource requirements
The fiat stablecoin issuer must have sufficient financial resources to operate the fiat stablecoin issuance business, including meeting the minimum paid-up share capital requirement. The purpose of this requirement is to ensure that the issuer has sufficient financial resources to maintain the issuer's operations and serve as a buffer against losses.
With reference to international regulatory practices, we recommend that the minimum paid-up share capital be HK$25,000,000, or a fixed percentage of the denomination of the fiat stablecoin in circulation, whichever is higher. We recommend that the fixed percentage be set at 2%.
If the Monetary Authority considers it necessary, he may also impose higher paid-up capital requirements on issuers through licensing conditions under the regime.
(f) Disclosure requirements
Fiat stablecoin issuers must publish a white paper, to disclose general information about the issuer, the rights and responsibilities of users of the fiat stablecoin, the stabilization mechanism of the fiat stablecoin, the reserve asset management arrangements, and the technology and risks used. The issuer must notify the Monetary Authority before publishing the white paper and other relevant publications.
Fiat stablecoin issuers must disclose redemption policies, clearly specify the redemption procedures, redemption time limit, applicable fees, and the rights of fiat stablecoin users regarding redemption.
(g) Governance, knowledge and experience
The controllers, CEOs and directors of the fiat stablecoin issuers must be fit and proper persons, and the appointment of such persons, as well as changes in the ownership or management of the issuer, must be approved in advance by the Monetary Authority. In addition, the issuer must establish a comprehensive control system for the appointment of senior management and a robust corporate governance structure, with personnel who have the necessary knowledge and experience to perform their duties effectively.
(h) Risk management provisions
Stablecoin issuers must establish appropriate risk management procedures and measures for their operations. These measures includeAdequate security and internal control measures to ensure the security and integrity of data and systems; effective fraud monitoring and detection measures; technology risk management measures; robust contingency arrangements to cope with disruptions to business operations; and other operational and security measures commensurate with the scale and complexity of the business.The issuer should also conduct risk assessments regularly (at least once a year) to ensure that its internal controls, risk management and governance procedures are sound and effective.
(i) Auditing requirements
Fiat stablecoin issuers must submit audited financial statements to the Monetary Authority every year.If requested by the Monetary Authority, the issuer must submit a report prepared by an external independent auditor and assessor to confirm the effective management and sound operation of the fiat stablecoin issuance business, such as whether the issuer has adequate control systems in terms of reserve asset management, network security, and the robustness of "smart contracts".
(j) Anti-money laundering and terrorist financing regulations
Fiat currency stablecoin issuers must ensure that the design and implementation of fiat currency stablecoin issuance is subject to sound and appropriate control systems to prevent and combat activities that may involve money laundering and terrorist financing.The issuer must have a sound and appropriate control system to ensure that the company complies with the applicable provisions of the Anti-Money Laundering Ordinance and the measures promulgated by the Monetary Authority in the form of rules, regulations, guidelines or other forms to prevent, combat or detect money laundering or terrorist financing. Such requirements include but are not limited to adequate customer due diligence measures, transaction monitoring and wire transfer requirements ("wire transfer rules") for the issuance and redemption of fiat stablecoins in accordance with the standards of the Financial Action Task Force and the requirements under the Anti-Money Laundering Ordinance.
Other licensing matters
(a) Eligibility for applying for a licence
It is now recommended that all entities that can meet the licensing criteria and conditions are eligible to apply for a fiat stablecoin issuer license. Applicants for licenses need to go through a rigorous approval process, which requires them to demonstrate that they meet the licensing criteria and conditions including but not limited to those set out in this document.
Taking into account that licensed banks are already subject to strict prudential regulations and are subject to ongoing comprehensive supervision by the Monetary Authority, we recommend that the licensing criteria (c) restriction on business activities, (d) having a physical company and office in Hong Kong and (e) financial resources requirements should not apply to fiat stablecoin issuers that are licensed banks, as licensed banks are already subject to the banking regulatory regime in these aspects.
(b) Continuing Licensing Conditions
In addition to establishing licensing criteria, we propose to give the Monetary Authority the power to set, modify or cancel the ongoing licensing conditions for issuers of fiat stablecoins. The Monetary Authority will set such conditions as necessary. For example, such conditions may include requirements for reserve assets and restrictions on the types of services that issuers can provide.
(c) Issuing more than one fiat stablecoin
We recommend that fiat stablecoin issuers obtain the approval of the Monetary Authority before issuing any new fiat stablecoins under their license.The purpose of this regulation is to ensure that new fiat stablecoins do not affect the operation of existing fiat stablecoins.
(d) Open license
We propose to make the fiat stablecoin issuer license an open license, which means that the licensed issuer will remain valid as long as it continues to operate and its license has not been revoked by the Monetary Authority (for example, due to non-compliance or cessation of operation by the issuer).
(e) Register of Licensees and Licence Fees
We recommend that fiat stablecoin issuers must display their licence number on any advertising material and any software applications provided to customers to inform the public of their licensing status. The Monetary Authority will maintain a central register of licensees for public inspection.
We propose to give the Monetary Authority the power to impose an annual licence fee on fiat stablecoin issuers (including licensees that are themselves licensed banks).
Fiat stablecoin custody and purchase services
Some stakeholders believe that virtual asset custody and purchase services should be subject to specific regulation. The Treasury, the HKMA and the SFC will work closely to assess the appropriate regulatory model for such services.
In terms of providing services for purchasing stablecoins, we believeThe risks involved in fiat currency stablecoins issued by unlicensed issuers are not transparent, and therefore the above-mentioned fiat currency stablecoins are not suitable for use by the general public.To protect users of fiat stablecoins, it is now recommended that only licensed fiat stablecoin issuers, authorized institutions, licensed corporations and licensed virtual asset trading platforms can provide services for purchasing fiat stablecoins in Hong Kong, or actively promote such services to the public in Hong Kong. When providing such services, authorized institutions, licensed corporations and licensed virtual asset trading platforms can only sell fiat stablecoins to professional investors if they are issued by unlicensed issuers, and must clearly state that the fiat stablecoins are not issued by licensed fiat stablecoin issuers.
Power of authorities to amend the system
Given the rapid evolution of the industry, we recommend that the regulatory regime should be flexible enough to address new risks arising from emerging stablecoins, activities or entities. Drawing on the regulatory regime for virtual asset service providers, we recommend that authorities be given the necessary powers to adjust the scope of regulated stablecoins and activities.
We recommend that the authorities exercise such powers after taking into account (i) risks to Hong Kong's monetary and financial stability; (ii) risks to Hong Kong's functioning as an international financial centre; and (iii) matters of significant public interest. In determining the materiality and the extent of the risks involved, the authorities may consider factors including but not limited to the following:
(a) the number and categories of users;
(b) the number and value of transactions;
(c) the size and types of reserve assets;
(d) circulation value;
(e) market share;
(f) interconnectedness with the financial system; and/or
(g) business, structural and operational complexity.
Supervisory powers of the Monetary Authority
Powers to manage licensees
Taking into account the potential impact that a default or collapse of a fiat stablecoin issuer may have on the financial system, we propose to give the Monetary Authority the power to intervene in the operations of a licensee when necessary. With reference to similar powers in the Banking Ordinance, the Securities and Futures Ordinance, the Payments Ordinance and the Anti-Money Laundering Ordinance, we propose to give the Monetary Authority the power to intervene in the operations of a licensee when necessary. After consulting the Financial Secretary and if the Monetary Authority is of the opinion that a licensee (i) is or is likely to be insolvent or unable to meet its obligations; (ii) is operating its business in a manner that is detrimental to the interests of its users or creditors; or (iii) has breached the licensing conditions or provisions of the proposed regulatory regime:
(a) requiring a licensee to take any action in relation to the affairs, business or property of the licensee that the Monetary Authority considers necessary, including restricting the licensee’s business of issuing fiat stablecoins under the relevant licence;
(b) directing a licensee to seek advice on the management of its affairs, business and property from an adviser appointed by the Monetary Authority; and
(c) a direction requiring the affairs, business and property of a licensee to be managed by an Administrator appointed by the Monetary Authority.
To enable the MA to ensure that the owners and management of a licensee are fit and proper, we recommend that the MA’s consent should be obtained for the following changes in ownership or management:
(a) a merger, including by any arrangement or agreement to sell or dispose of all or part of the business of the fiat stablecoin issuer;
(b) a person becoming or being a "controlling person" (substantial shareholder controller, minority shareholder controller and indirect controller) and share sales; and
(c) Appointment of Chief Executive Officer and Directors.
As Hong Kong authorized institutions are already regulated by the Monetary Authority under the Banking Ordinance, the Monetary Authority’s powers over the management of licensees under the proposed regulatory regime generally apply to licensees that are Hong Kong authorized institutions.
Other supervisory powers
In order to ensure that fiat stablecoin licensees continue to comply with relevant statutory requirements, including the minimum licensing standards and any licensing conditions that they must comply with in light of their fiat stablecoin issuance business, it is necessary to grant the Monetary Authority appropriate supervisory powers. With reference to the corresponding empowering provisions of the Banking Ordinance and the Payments Ordinance, some of these powers are set out below:
Power to collect information
We propose to empower the Monetary Authority to require licensees to provide information or documents regularly or at such times as the Monetary Authority considers appropriate, including but not limited to reports by internal and external auditors, books, accounts and transactions of the licensees or their subsidiaries. We also propose to empower the Monetary Authority to conduct on-site inspections of licensees' premises to collect information so as to effectively monitor the licensees' compliance with the requirements under the proposed regulatory regime.
Power to give directions
We propose to empower the Monetary Authority to instruct licensees to take actions that the Monetary Authority considers necessary to enable licensees to comply with statutory requirements and ensure that users of fiat stablecoins are protected.
Power to make regulations
We recommend that the Monetary Authority be given the power to make regulations under the proposed legal framework to effectively implement the proposed regulatory system. The regulations could cover specific requirements for the issuance, redemption, reserve asset management and risk management of fiat stablecoins.
Power to give directions
We recommend that the Monetary Authority be given the power to issue guidelines to explain how the Monetary Authority will perform its functions and to provide instructions on compliance with the proposed regulatory regime, as well as practical instructions to assist licensees in complying with statutory requirements.
Investigatory powers of the Monetary Authority
If the issuer of a fiat stablecoin violates the relevant provisions of the proposed law or operates improperly, it may cause losses to users and participants and disrupt the overall financial stability of Hong Kong. The overall goal of the regulatory enforcement function is to detect improprieties effectively and early. Therefore, we recommend that the Monetary Authority be given the power to investigate when there are reasonable grounds to believe that a violation of the ordinance may have occurred. The powers proposed include:
(a) the Monetary Authority may direct an investigator to conduct an investigation;
(b) The investigator may compel all persons suspected of the violation to give evidence, including the production of any records or documents. The Monetary Authority may require such persons to explain the details of any records or documents; require such persons to appear before him to answer questions about the matters under investigation; and provide such persons with assistance in connection with the investigation. The investigator may also inspect records or documents taken away for the purpose of the investigation; and
(c) The Monetary Authority may, where necessary, apply to a magistrate for a search warrant and carry out seizure.
Violations and sanctions
Criminal Offences and Sanctions
The proposed criminal sanctions mechanism can deter similar violations by the industry and the public. The relevant offences include issuing or showing oneself to issue a legal currency stablecoin in Hong Kong without a license, issuing or showing oneself to issue a Hong Kong dollar stablecoin, actively promoting the issuance of its legal currency stablecoin to the Hong Kong public, and issuing advertisements to promote the issuance of legal currency stablecoins by non-licensed issuers, refusing to produce documents upon request by the Monetary Authority, providing false information to the Monetary Authority or making false entries in documents, and violating other conditions issued by the Monetary Authority for the licensing system for legal currency stablecoin issuers.
According to our current proposal, only the licensed institutions listed in this document can provide services for purchasing fiat stablecoins in Hong Kong. Therefore, it is illegal to provide services for purchasing fiat stablecoins in Hong Kong unless it is a listed licensed institution. It is also illegal to issue advertisements for purchasing fiat stablecoins that are not provided by the listed licensed institutions. In determining the amount of fines and imprisonment sentences applicable to the relevant violations under the proposed regulatory system, we will refer to the relevant provisions of the Anti-Money Laundering Ordinance, the Banking Ordinance, the Payment Ordinance and the Securities and Futures Ordinance.
Civil and Regulatory Sanctions
In addition, we believe that a range of civil and regulatory sanctions should be introduced into the proposed regulatory regime to implement a penalty system, allowing the Monetary Authority to consider appropriate penalties based on the severity and duration of the breach. The proposed civil and regulatory sanctions include the following:
(a) issuing a warning, caution, reprimand or order to take specified action; regulatory sanctions include temporary suspension of a licence, revocation of a licence, cancellation of a licence, or a combination of these measures;
(b)A fine of not more than HK$10,000,000 or 3 times the amount of profit gained or loss avoided as a result of the breach, whichever is higher；或
(c) A combination of the above measures.
appeal
To ensure that the Monetary Authority is subject to checks and balances in the exercise of the powers conferred by the proposed Ordinance, we propose to establish an Appeal Tribunal mechanism to deal with appeals against the Monetary Authority's decisions on the implementation of licensing and regulatory requirements under the proposed regulatory regime. Decisions that may be appealed include decisions made by the Monetary Authority on the following: refusing to grant a licence to a fiat currency stablecoin issuer, attaching conditions to a licence, attaching conditions to the exemption granted to a fiat currency stablecoin issuer, revoking and cancelling a licence, objecting to controllers, directors and principal officers (such as the chief executive officer) of a licensee, and imposing civil and regulatory sanctions. If a person is dissatisfied with the decision of the Appeal Tribunal, he or she may appeal to the Court of Appeal on legal arguments against the ruling.
Transitional arrangements