December 28, 2023
HONG KONG – Hong Kong on Wednesday published a public consultation paper to gather views on a legislative proposal to regulate issuers of stablecoin — digital tokens that are pegged to an existing currency or commodity — amid the city’s drive to develop itself into a global hub for virtual assets.
The paper, jointly issued by the Financial Services and the Treasury Bureau and the Hong Kong Monetary Authority (HKMA), came as the special administrative region government considers introducing a regulatory regime for fiat-referenced stablecoin issuers given the important roles played by the tokens in the virtual asset ecosystem, and the rising interconnectedness between the traditional financial system and the digital asset markets, according to an official statement announcing the consultation.
Fiat-referenced stablecoins can only be provided by specified licensed entities and only fiat-referenced stablecoins licensed by the de facto central bank can be offered to retail investors
The legislative proposal includes introducing new legislation to implement a licensing regime requiring all fiat-referenced stablecoin issuers that meet certain conditions to be licensed by the HKMA.
Fiat-referenced stablecoins can only be provided by specified licensed entities and only fiat-referenced stablecoins licensed by the de facto central bank can be offered to retail investors. Advertising will also be prohibited for issuance by unlicensed entities or offering by non-specified licensed entities.
The consultation period will last until Feb 29.
Since Hong Kong began the push to build itself a global virtual asset hub, a string of financial scandals have centered on virtual assets, including JPEX — an unlicensed cryptocurrency exchange that had allegedly defrauded more than 2,500 people of over HK$1.6 billion ($204.9 million).
“With the implementation of the licensing regime for virtual asset trading platforms from June this year, the legislative proposal to regulate fiat-referenced stablecoins is another important measure facilitating Web 3 ecosystem development in Hong Kong,” said the Secretary for Financial Services and the Treasury Christopher Hui Ching-yu.
With the relevant licensing, supervisory and enforcement parameters in place, the actual and potential risks associated with stablecoin development in Hong Kong are expected to be properly managed in line with international standards, Hui added.
The HKMA will also introduce a sandbox arrangement for communicating supervisory expectations and guidance on compliance to entities having a genuine interest in and a reasonable plan for issuing fiat-referenced stablecoins in Hong Kong.
Feedback on the proposed regulatory requirements will be gathered to facilitate the subsequent implementation of the regulatory regime and ensure that it is fit for purpose.
HKMA Chief Executive Eddie Yue Wai-man said the authority is supportive of financial innovation and believes that it is essential to put in place the necessary regulatory guardrails and standards to enable the long-term, sustainable and responsible development of the virtual asset ecosystem.
“We are therefore introducing a sandbox arrangement alongside the public consultation to establish channels for the exchange of views between the HKMA and market players who wish to establish stablecoin issuance business in Hong Kong with a view to facilitating the implementation of the regulatory regime,” he said.