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Hong Kong Proposes new Regulatory Regime for Stablecoin Issuers Alongside Sandbox Environment

As innovation continues in the virtual asset space, regulatory authorities in Hong Kong have proposed new regulatory rules for stablecoin issuers. 

The Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) jointly issued a public consultation paper on 27 December 2023 regarding a new legislative proposal for implementing the regulatory regime for stablecoin issuers in Hong Kong.

Under the proposed regime, issuers would require a license from the HKMA to issue stablecoins that reference the value of one or more fiat currencies in Hong Kong.

As part of these requirements, licensees would need to maintain a pool of reserve assets (such as bank deposit in matching currencies, and short-term debt securities) with proper custody arrangement, to ensure that users can redeem the stablecoins for fiat currency at par. Licensees would also need to comply with relevant governance, risk management and AML/CFT measures.

According to the Hong Kong government, bringing fiat-referenced stablecoin (FRS) issuers under its regulatory remit will support the management of potential monetary and financial stability risks, and provide transparent and suitable guardrails with the increased prevalence of virtual assets.

Eddie Yue, chief executive at HKMA
Eddie Yue, chief executive at HKMA

Eddie Yue, chief executive at HKMA, also explained: “In an ever-changing market, it would be important to keep abreast of the latest developments, as well as to put in place a regulatory regime that strikes a good balance between safeguarding financial stability and embracing innovation.

“With this in mind, the HKMA plans to roll out a ‘sandbox’ to facilitate the communication of our supervisory expectations with entities that are interested in issuing stablecoins in Hong Kong.”

‘Seizing the opportunity’

Ronald Iu, CEO of ZA Bank, the Hong Kong-based virtual bank, also revealed enthusiasm for the regulatory suggestions: “ZA Bank warmly welcomes the public consultation paper jointly issued today by the FSTB and HKMA regarding the proposed legislation for regulating stablecoin issuers. We also appreciate the HKMA’s introduction of sandbox arrangement, as we believe that industry feedback will be highly valued by the authorities.

Ronald Iu, CEO of ZA Bank
Ronald Iu, CEO of ZA Bank

“We anticipate that this consultation process will strengthen the future regulatory framework, providing greater security and fostering the development of the industry. This, in turn, will enhance the confidence of retail investors and contribute to establishing Hong Kong as a global hub for Web3.

“As a technology-driven bank, our ambition is to be the preferred banking partner of Hong Kong’s Web3 ecosystem, guided by our ‘Banking for Web3’ vision. We have already provided essential business banking services to over 80 Web3 companies and have served as the banking partner for licensed virtual asset trading platforms (VATPs) in Hong Kong. Leveraging our relevant experience, we are more than willing to offer support and assistance to both the authorities and the industry.

“We firmly believe that virtual assets will become a significant asset class for future investments. Within a secure regulatory environment, we eagerly anticipate seizing the opportunity to provide users with new investment possibilities brought about by Web3.”

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