Hong Kong races ahead with new stablecoin regulatory framework

Hong Kong has moved closer to formalizing its stablecoin regulations by publishing a bill in its gazette on Dec. 6 that establishes a clear framework for issuers and marketers.

Stablecoins have become useful tools for cross-border transactions, with Standard Chartered recently calling them the crypto industry’s “killer app.”

Under the new bill, stablecoin issuers and marketers must secure licenses from the Hong Kong Monetary Authority (HKMA). This requirement extends to stablecoins pegged to the Hong Kong dollar. Issuers must keep reserve assets in local banks, although the HKMA may occasionally allow foreign custody arrangements.

The legislation outlines strict compliance measures, including a minimum paid-up capital of HK$25 million (more than $3 million). Issuers must also demonstrate strong financial health, liquidity, and risk management capabilities. Activities like misrepresentation to promote stablecoins are prohibited to ensure consumer protection and market integrity.

Additionally, the HKMA will gain enhanced powers to oversee, investigate, and enforce compliance under this framework.

The initiative reflects Hong Kong’s commitment to addressing financial risks while fostering innovation. Officials have emphasized that the framework aligns with international standards and embodies a principle of applying consistent regulation to similar activities and risks.

Christopher Hui, Secretary for Financial Services and the Treasury, pointed out that the proposal aligns with the “same activity, same risks, same regulation” principle. This ensures the framework meets global standards and reinforces Hong Kong’s position as a leading financial hub.

Eddie Yue, Chief Executive of the HKMA, highlighted that the bill incorporates feedback from industry consultations and aims to foster sustainable growth within the stablecoin ecosystem.

The bill is set for a first reading in the Legislative Council on Dec. 18. If passed, Hong Kong will join early movers like the European Union and Japan in regulating stablecoins while outpacing other jurisdictions like the US, which has yet to implement similar frameworks.

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