Key Takeaways
The consultation saw 108 submissions from industry participants and professional institutions.
Most submission respondents agreed that a regulatory regime is necessary for FRS issuers
Hong Kong is set to introduce a licensing regime for stablecoin issuers, as the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) have concluded their consultation on the matter. This development is part of the city’s legislative efforts to regulate the growing industry of fiat-referenced stablecoins (FRS).
In a joint statement, the HKMA and FSTB announced that the majority of respondents supported the introduction of a regulatory framework for FRS issuers. The consultation, which ended in February, saw 108 submissions from industry participants and professional institutions. A key proposal is that all FRS issuers must obtain a license from the HKMA.
“We will consider factors such as the FRS issuer’s place of incorporation, the location of its operations, provision of subsequent customer service to FRS users, and whether a Hong Kong bank account is used to process issuance and redemption requests,” the report stated.
The consultation highlighted the need for clarity about the scope of the regulatory regime. The HKMA will consider multiple factors to determine whether an entity is “actively marketing” FRS issuance to the Hong Kong public, including the language of marketing messages, the target audience, and the domain name used.
Under the new rules, stablecoin issuers must obtain a license from the HKMA and publish monthly attestations on reserve assets, verified by a third-party auditor, to ensure the coins are fully backed. The regulators emphasized the importance of maintaining full backing at all times, as insufficient reserves could lead to a loss of confidence in the ecosystem.
Eddie Yue, CEO of the HKMA, appreciated the feedback from stakeholders and emphasized the importance of a well-regulated environment. “We believe that a well-regulated environment is conducive to the sustainable and responsible development of the stablecoin ecosystem in Hong Kong,” he said.
The FSTB and HKMA plan to finalize the legislative proposal and introduce a bill to the Legislative Council soon. This follows the HKMA’s announcement in March of a sandbox for stablecoin issuers, intended to pave the way for future regulations. The list of sandbox participants will be announced shortly.
On July 17, the financial authorities followed up on their initial legislative proposal with a report on the two-month public consultation. The consultation received input from various stakeholders, including market participants and industry associations, who largely agreed on the need for a regulatory regime to manage financial stability risks and ensure transparent oversight.
Meanwhile, the Hong Kong Securities and Futures Commission (SFC) has been enforcing strict regulations on cryptocurrency exchanges. As of June 1, operating an unlicensed virtual asset trading platform (VATP) in Hong Kong is a criminal offense. Exchanges that failed to apply for a license by February 29 were required to shut down immediately.
During this period, over 22 cryptocurrency exchanges applied for licenses. However, six exchanges, including major players like OKX and Huobi HK, withdrew their applications and exited the Hong Kong market in May. The latest developments also comes amid the SFC updating its alert list to include seven unlicensed crypto trading platforms, raising concerns over investor safety.
