A consultation on the regulation of stablecoins in Hong Kong was announced in December of 2023. Stablecoins typically refer to digital assets referencing fiat currency and may be viewed as updated payment rails. Today, the Hong Kong Monetary Authority (HKMA) has revealed the results of the consultation on stablecoins. The conclusions are available here.
Hong Kong already has crypto trading rules in place.
The HKMA shares that 108 comments were received from industry participants, professional organizations, and others. The regulator said the vast majority of respondents said that due to the rise of “virtual assets,” it was important to introduce a regulatory regime for “fiat-referenced stablecoins” (FRS). The proposed regime received “general support” from respondents with some changes.
As part of the proposal, issuers must have sufficient financial resources to address “market risk, operational risk, technology risk and other risks arising from its business operations.”
Regarding AML/KYC issues, the HKMA proposal indicates they will adhere to FATF requests, which means the well-known “Travel Rule”—meaning buyer and seller information must be retained.
Hong Kong Secretary for Financial Services and the Treasury, Christopher Hui, said a licensing regime for stablecoins would strengthen the virtual asset regulator framework in Hong Kong and bring it in line with international standards.
Legislation to implement the regulatory proposal is now in the works, and authorities plan to introduce a bill to the Legislative Council later this year. Licensing guidelines and supervisory guidelines are forthcoming.
ZA Bank, one of the very first digital banks in Hong Kong, shared a comment with CI on the stablecoin proposed rules.
“As a pioneer in digital banking in Hong Kong, ZA Bank welcomes the consultation conclusions. We believe that introducing a regulatory regime for FRS issuers to facilitate proper management of the potential monetary and financial stability risks, while providing transparent and suitable guardrails, is a highly suitable and effective approach. This will contribute to the sustainable and responsible development and promotion of stablecoins, as well as the thriving web3 ecosystem, in Hong Kong.
We also agree that safekeeping reserve assets with licensed banks in Hong Kong can offer enhanced user protection in the event of FRS issuers’ business disruptions or failures.
ZA Bank had already announced, as early as the beginning of 2024, its commitment to providing dedicated banking services tailored for stablecoin issuers. This commitment ensures unparalleled security for their fiat reserves.
We will continue to closely monitor the progress of the legislative proposal and earnestly anticipate the approval of more companies to enter the sandbox. This will foster an even more vibrant web3 ecosystem throughout Hong Kong.”