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Hong Kong is considering the acceptance and regulation of fiat-referenced stablecoins (FRS), but with a stipulation that issuers must obtain a specific local license. This key point was outlined in a consultation paper jointly published on December 27 by the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA).
The consultation period is set to conclude on February 29, 2024. According to the legislative proposal, the definition of fiat-referenced stablecoins is provided, and it mandates that any companies “actively marketing their issuance of FRS to the public of Hong Kong” must be licensed by the HKMA.
To be eligible for an HKMA license, stablecoin issuers need to adhere to criteria such as fully backing all circulating stablecoins with reserves “at least equal to the par value,” segregation and safekeeping of reserve assets, and disclosure and regular reporting. Notably, the document specifies that algorithmic stablecoins will not qualify for a license.
Stablecoin issuers are also required to establish a registered office in Hong Kong with a designated chief executive, senior management team, and key personnel.
Christopher Hui, the Secretary for Financial Services and the Treasury, highlighted that with the implementation of the licensing regime for virtual asset (VA) trading platforms earlier in the year, the proposed legislation to regulate FRS is another crucial measure supporting the development of the Web3 ecosystem in Hong Kong.
In December, the HKMA and the Securities and Futures Commission (SFC) jointly announced their preparedness to receive applications for the authorization of various funds, including virtual asset spot exchange-traded funds (VA spot ETFs), in addition to existing crypto futures ETFs.
Ronald Iu, CEO of ZA Bank, one of Hong Kong’s prominent virtual banks, expressed a positive reception to the public consultation paper, anticipating that it will strengthen the future regulatory framework, enhance security, and contribute to establishing Hong Kong as a global hub for Web3.
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