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The Hong Kong Stablecoins Bill, gazetted on 6 December 2024, aims to establish a regulatory regime for fiat-referenced stablecoins (FRS) issuers.
The bill will strengthen the regulatory framework for virtual asset (VA) activities by addressing financial stability risks associated with fiat-referenced stablecoins (FRS), ensuring sufficient user protection, and leveraging the benefits of virtual assets and their underlying technologies.
Under the proposed licensing regime, any person conducting the following activities must be licensed by the Monetary Authority (MA).
These include issuing fiat-referenced stablecoins (FRS) as part of their business operations in Hong Kong, issuing FRS designed to maintain a stable value relative to the Hong Kong dollar, or actively promoting the issuance of such FRS to the public in Hong Kong.
The bill also grants the MA the powers to supervise, investigate, and enforce the regulatory regime effectively.
The Secretary for Financial Services and the Treasury, Christopher Hui, highlighted the significance of the bill. He stated,
Christopher Hui
“The legislative proposal is essential for Hong Kong in fulfilling our obligations as a member of the Financial Stability Board.
Adhering to the ‘same activity, same risks, same regulation’ principle, this risk-based proposal aims to promote a robust regulatory environment, which aligns with Hong Kong’s approach to VA development.”
“We have undertaken extensive consultations and given due consideration to the views of the industry when formulating the details of the regulatory regime.
We believe that a well-regulated environment is conducive to the sustainable and responsible development of the stablecoin ecosystem in Hong Kong.” The bill will be introduced into the Legislative Council for its first reading on December 18.
Hong Kong’s Extensive Stablecoin Regulations for FRS Issuers
Aimed at promoting transparency, stability, and consumer protection, the bill lays out robust licensing criteria for FRS issuers, ensuring they operate in a safe and responsible manner.
In addition to that, the consultation paper by the HKMA has covered previously covered other FRS issuer requirements.
To secure a license, FRS issuers must fully back their stablecoins with reserve assets equal to or greater than the stablecoin’s value in circulation. These reserves must be high-quality, liquid assets, held securely in segregated accounts with licensed banks or approved custodians.
Issuers must also maintain strict investment policies and conduct regular stress testing to ensure liquidity during large-scale redemptions.
FRS issuers are required to allow stablecoin holders to redeem their tokens at par value without undue costs or restrictions. Redemption policies must be clearly disclosed, and contingency plans are mandatory to safeguard users in the event of operational disruptions or insolvency.
Issuers must meet stringent governance standards, including appointing qualified personnel, implementing strong risk management practices, and conducting regular audits. Additionally, they are expected to adhere to anti-money laundering and counter-terrorism financing measures in line with global standards.
The success of Hong Kong’s stablecoin regulatory framework will depend heavily on its ability to balance robust oversight with flexibility. The true measure of this endeavour will lie in how effectively it addresses emerging challenges such as technological advancements, market volatility, and the cross-border nature of digital assets.
