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posted 5 months ago
The Financial Services and the Treasury Bureau of the Hong Kong government and the Hong Kong Monetary Authority (HKMA) conducted public consultations in December 2023 on a proposed regulatory regime for stablecoin activities in Hong Kong that would be effected by new legislation.
Scope of proposed regime
The proposed regime covers any fiat-referenced stablecoin (FRS), which is defined as a cryptographically secured digital representation of value that purports, among its features, to maintain a stable value with reference to one or more fiat currencies, except for items already covered by other regulatory regimes, such as deposits. This definition also excludes stablecoins that are referenced to precious metals or other assets.
The two types of activities to be regulated are:
Engaging in such regulated activities without the relevant licence or authorisation will constitute a criminal offence. The HKMA will administer the proposed FRS-issuer licensing and regulatory regime.
FRS issuance
It is proposed that all FRS issuers be licensed by the HKMA. The licensing requirements would include:
FRS offering
FRS can be offered in Hong Kong only by licensed FRS issuers and other regulated entities, such as licensed corporations regulated by the Hong Kong Securities and Futures Commission, authorised institutions licensed by the HKMA, and licensed virtual asset trading platforms. Where the FRS is not issued by a licensed FRS issuer, the offering can be made only to professional investors.
Features of regulatory regime
This regime proposed by the Hong Kong regulators will provide adequate protection to FRS holders and address potential monetary and financial stability risks posed by FRSs. Certain locality elements are proposed (e.g. the FRS issuer must be a Hong Kong company with locally based senior management) to allow the HKMA to exercise effective supervision over such entities and persons. To protect the Hong Kong public, it fences Hong Kong retail investors off from being offered FRSs not issued by licensed FRS issuers.
This may be onerous to certain international FRS issuers, but it is an important step for Hong Kong to maintain its status as an international financial centre while developing a healthy stablecoin ecosystem at the same time.
This material has been prepared for general informational purposes only and is not intended to be relied upon as professional advice. Please contact us for specific advice.
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