Hong Kong Advances Stablecoin Regulation with Industry Input

• Hong Kong’s new regulations require stablecoin issuers to set up physical offices and use licensed banks for reserves.
• Broad support emerged for Hong Kong’s proposed stablecoin rules, emphasizing financial stability and transparency.
• The HKMA will announce sandbox participants for stablecoin issuers as it finalizes the new regulatory framework.

The Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) have issued a consultation report on new regulatory measures for fiat-referenced stablecoin (FRS) issuers. 

The report, as  highlighted by Wu Blockchain on his recent post on X (recently known as Twiter),  follows a public consultation period that concluded in February, receiving significant feedback from 108 stakeholders, including market participants and industry associations.

The proposed regulatory framework mandates that stablecoin issuers set up physical companies in Hong Kong. Additionally, issuers must entrust their reserve assets to licensed banks in the city for custody. 

Notably, the proposal prohibits stablecoin issuers from offering interest to users. These measures aim to enhance financial stability and transparency within the virtual asset (VA) ecosystem.

The consultation report indicates broad support for the proposed regulatory measures. Most respondents agreed on the necessity of a regulatory regime for FRS issuers, emphasizing the importance of managing potential monetary and financial stability risks. 

The feedback received included suggestions for further enhancing the proposed requirements, reflecting a collaborative effort to refine the regulatory framework.

Christopher Hui, the Secretary for Financial Services and the Treasury, underscored the importance of the proposed licensing regime for FRS issuers. He noted that this regime would complement the existing regulatory measures for VA trading platforms, aligning Hong Kong’s regulatory framework with international standards. Hui emphasized that this approach would effectively mitigate potential financial stability risks associated with FRS issuance activities.

Eddie Yue, the Chief Executive of the HKMA, expressed gratitude for the constructive feedback from respondents. He noted the general support for the proposed regulatory regime and underscored the belief that a well-regulated environment would foster the sustainable and responsible development of Hong Kong’s stablecoin ecosystem.

The FSTB and HKMA are finalizing the legislative proposal and including the feedback from the consultation period. They plan to introduce the bill to the Legislative Council soon. Meanwhile, the HKMA is reviewing applications for the stablecoin issuer sandbox and will announce the participants shortly.