Hong Kong to oblige stablecoin issuers to obtain license — Consultation paper

December 29, 2023

By Sharan Kaur Phillora

Hong Kong is set to redefine its approach to stablecoin regulation, as indicated in a recent consultation paper published on December 27 by the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA). The proposal mandates that all fiat-referenced stablecoin (FRS) issuers acquire a license to bolster the Web3 ecosystem while ensuring consumer protection.

Here’s what we know:

The proposed legislation, open for public comment until February 29, 2024, outlines stringent requirements for FRS issuers, focusing on full reserve backing, segregated asset management, and regular reporting to authorities. Notably, the guidelines exclude algorithmic stablecoins from eligibility, emphasizing the need for a tangible and reliable reserve base.

Issuers aiming to market their FRS in Hong Kong must establish a registered regional office and appoint a competent management team, adhering to the HKMA’s rigorous criteria. The licensing regime, as outlined, is part of a broader effort to mitigate risks associated with digital asset development and increase the industry’s transparency and accountability.

Christopher Hui, the secretary for Financial Services and the Treasury, highlighted the licensing regime’s role in advancing Hong Kong’s digital finance landscape, particularly in fostering a secure and robust Web3 environment. This move aligns with Hong Kong’s broader strategy to position itself as a global digital innovation and investment hub.

The initiative has garnered support from industry leaders, including Ronald Lu, CEO of ZA Bank, one of Hong Kong’s leading virtual banks. Lu expressed enthusiasm for the consultation paper’s potential to strengthen the regulatory framework, enhancing retail investor confidence and further solidifying Hong Kong’s stature in the burgeoning Web3 space.

The global financial community watches closely as Hong Kong awaits feedback on its proposed regulatory framework. The successful implementation of this licensing regime could secure a safer digital asset environment for users and propel Hong Kong to the forefront of the international Web3 domain.

About the author

Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.

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