Hong Kong is taking steps to regulate the issuance and marketing of stablecoins, a form of digital currency that is pegged to a fiat currency. The Hong Kong Monetary Authority (HKMA) and the Financial Services and the Treasury Bureau (FSTB) published a consultation paper on the proposed regulatory framework for stablecoin issuers on December 27, 2023.
The move is part of the jurisdiction’s efforts to become a leading crypto hub in the region. The paper outlines the criteria and conditions for obtaining a license from the HKMA and the supervisory expectations and guidance on compliance for prospective issuers.
According to the paper, the licensing regime will apply to any entity that intends to issue a stablecoin that is referenced to a fiat currency or market such a stablecoin to the Hong Kong public. The regime will also cover any entity that intends to issue a stablecoin that is referenced to the Hong Kong dollar, regardless of whether it is marketed to the Hong Kong public or not.
The paper states that the licensing regime will be introduced through legislation and that the HKMA will be the stablecoin issuers’ sole regulator and supervisor. The paper also proposes a regulatory sandbox where eligible applicants can test their products and services in a controlled environment before applying for a license. The consultation period will last until February 29, 2024, and the HKMA and the FSTB invite public and industry feedback on the proposed framework.
Hong Kong’s Proactive Stablecoin Regulation
The proposed framework is a sign of Hong Kong’s proactive and forward-looking approach to regulating the crypto sector. It follows the implementation of a licensing regime for crypto service providers in June 2023, which recognizes retail crypto trading as a regulated activity.
Hong Kong aims to foster innovation and competition in crypto while ensuring consumer protection, financial stability, and anti-money laundering by introducing a licensing regime for stablecoin issuers. The framework also aligns with the international standards and best practices on stablecoin regulation, as the Financial Action Task Force (FATF) and the Financial Stability Board (FSB) recommended.
The framework may also give Hong Kong an edge over other jurisdictions, as it provides legal certainty and clarity on the regulatory requirements and expectations. However, the framework may also pose challenges and costs for existing and potential stablecoin issuers, as they must comply with the licensing conditions and the ongoing supervision by the HKMA.
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