Hong Kong’s Approach to Regulating Stablecoins
Hong Kong authorities, including the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA), have unveiled a proposal to regulate fiat-pegged stablecoins (FRS). This move is aimed at balancing investor access with the need for financial security and stability.
Licensing Requirements for Stablecoin Issuers
Under the new guidelines, stablecoin issuers seeking to operate in Hong Kong must secure a special license from the HKMA. To qualify, they need to ensure that all stablecoins in circulation are fully backed by reserves equivalent to their face value. This includes the segregation and custody of reserve assets, transparent disclosure practices, and regular reporting. Additionally, these companies must establish a local presence in Hong Kong, including a main office, a CEO, a senior management team, and key personnel. Notably, issuers of algorithmic stablecoins are excluded from obtaining a license.
Statements from Hong Kong’s Treasury Bureau
Hui Ching, the Director of the Treasury Bureau, emphasized the importance of this regulatory framework. “Implementing law enforcement and enforcement arrangements can properly manage the actual and potential risks associated with developing stablecoins in Hong Kong and be consistent with international standards,” he stated.
Expanded Access to Cryptocurrency Trading
In a related development, the Securities and Futures Authority (SFC) of Hong Kong decided in May to permit retail investors to trade cryptocurrencies, including Bitcoin (BTC) and Ether (ETH), under stringent security measures. Eligible cryptocurrencies must have a clean record of no “bad incidents” for 12 months and be listed in at least two indices.
Prospects for Cryptocurrency ETFs
December saw the SFC expressing its readiness to accept applications for launching cryptocurrency ETFs. This move is part of a broader strategy by Hong Kong’s regulatory agencies to review and adjust existing rules and policies concerning companies and intermediaries involved in the cryptocurrency market.