Hong Kong Takes Steps to Regulate Stablecoins
Hong Kong has taken a significant step towards formalizing its stablecoin regulations by introducing a bill that sets out a clear framework for issuers and marketers. The bill, published in the gazette on December 6, aims to streamline the process for companies involved in the issuance and promotion of stablecoins.
Stablecoins have gained popularity in the cryptocurrency industry for their role in facilitating cross-border transactions. Standard Chartered recently referred to stablecoins as the “killer app” of the crypto world, highlighting their importance in the digital economy.
Under the new legislation, stablecoin issuers and marketers will be required to obtain licenses from the Hong Kong Monetary Authority (HKMA). This requirement applies to stablecoins pegged to the Hong Kong dollar, with issuers mandated to maintain reserve assets in local banks. In certain cases, the HKMA may permit foreign custody arrangements for these reserves.
The bill also sets out stringent compliance measures, including a minimum paid-up capital of HK$25 million (equivalent to over $3 million). Issuers must demonstrate strong financial health, liquidity, and risk management capabilities. The legislation prohibits activities like misleading marketing practices to safeguard consumer interests and maintain market integrity.
Furthermore, the HKMA will be granted enhanced powers to supervise, investigate, and enforce compliance within the stablecoin ecosystem under the new framework. This move underscores Hong Kong’s commitment to mitigating financial risks while fostering innovation in the digital asset space.
Christopher Hui, Secretary for Financial Services and the Treasury, emphasized the principle of “same activity, same risks, same regulation” in the proposed framework. This approach ensures that Hong Kong’s regulatory standards align with global best practices, reinforcing the city’s status as a prominent financial hub.
Eddie Yue, Chief Executive of the HKMA, noted that the bill reflects input from industry consultations and aims to promote sustainable growth in the stablecoin sector. The legislation is slated for a first reading in the Legislative Council on December 18, positioning Hong Kong alongside jurisdictions like the European Union and Japan in regulating stablecoins.
While some countries, like the United States, have yet to implement comprehensive frameworks for stablecoin regulation, Hong Kong’s proactive approach signals its readiness to embrace the evolving digital financial landscape. By establishing a robust regulatory framework, Hong Kong is poised to attract investment and innovation in the burgeoning stablecoin market.