Hong Kong to introduce stablecoin bill to regulate virtual token, protect stability
2024-12-06
The Hong Kong government has published a stablecoin bill in the gazette, taking the proposed regulatory regime a step closer to legal force, as the city moves to balance financial stability and consumer protection while promoting its agenda on virtual assets.
The publication follows the public consultation between the city’s financial affairs office, the Hong Kong Monetary Authority (HKMA) and industry participants in July. Three stablecoin issuers were admitted in July to test its usage in different scenarios.
The proposed regulatory regime will require any person to be licensed by the HKMA before they are allowed to issue fiat-referenced stablecoins and [other] tokens that purport to maintain a stable value with the Hong Kong dollar. Licenses are also needed for actively marketing the issue of such tokens to the public, it said in a statement.
The HKMA will be empowered to conduct the necessary supervision, investigation and enforcement for effective implementation of the regime.
The Stablecoins Bill will be introduced into the Legislative Council for a first reading on December 18, the government said.
“The legislative proposal is essential for Hong Kong in fulfilling our obligations as a member of the Financial Stability Board,” Christopher Hui Ching-yu, Secretary for Financial Services and the Treasury, said in a statement. “This risk-based proposal aims to promote a robust regulatory environment, which is in line with Hong Kong’s approach to virtual-asset development.”
The draft contains details about the definition of stablecoins, the licensing application process and transitional arrangements for existing stablecoin issuers, among other things. It also lists some activities as illegal, including misrepresentation to induce another person to acquire a stablecoin.
A licensed issuer must have adequate financial resources and liquid assets to meet its obligations, as well as comprehensive risk-management measures. For example, the minimum paid-up capital is HK$25 million (US$3.2 million).
The framework provides more flesh to the bones in nearly 300 pages, compared with the 30-page consultation paper, according to Andrew Fei, a partner at law firm King & Wood Mallesons. For instance, the proposed definition of a stablecoin is “broad and future-proof”, as it not only covers stablecoins that operate on a distributed ledger but also those that operate on any similar information repository, he said.
Lawrence Chu, co-founder of IDA, a Hong Kong-based Web3 digital asset company, said the legal framework will open up enormous opportunities.
“Stablecoins can provide cost-effective and efficient cross-border transactions, offering businesses 24/7 digital payment services,” he said. Integrating Hong Kong dollar-backed stablecoins into the financial system will help boost cross-border trade and strengthen the city’s status as an international digital asset hub, Chu added.
Hong Kong is among the first few jurisdictions to regulate stablecoin issuers, after moves by the European Union and Japan. Singapore and the UK are in the process of preparing their respective regulations, while the US so far has no regulation in the sector.
As the world is exploring transactions that take place in the Web3 ecosystem, the expectation is that “there will be more usage and larger transactions that will be settled or paid using stablecoins”, said Fei. As a result, Hong Kong regulators are mindful of potential risks to the financial-system stability.
Sources: SCMP
