Hong Kong has taken a significant step towards formalizing its regulations on stablecoins by introducing a new bill in its gazette on Dec. 6. This bill establishes a clear framework for issuers and marketers of stablecoins, which have become increasingly popular for cross-border transactions. In fact, Standard Chartered recently referred to stablecoins as the crypto industry’s “killer app.”
Under the new bill, stablecoin issuers and marketers will be required to obtain licenses from the Hong Kong Monetary Authority (HKMA). This requirement applies to stablecoins that are pegged to the Hong Kong dollar. Issuers must maintain reserve assets in local banks, although the HKMA may allow for foreign custody arrangements in certain cases.
The legislation sets out stringent compliance measures, including a minimum paid-up capital of HK$25 million (over $3 million). Issuers must also demonstrate strong financial health, liquidity, and risk management capabilities. The bill also prohibits activities such as misrepresentation to promote stablecoins, in order to safeguard consumer protection and market integrity.
Furthermore, the HKMA will be granted enhanced powers to oversee, investigate, and enforce compliance under this new framework. This initiative demonstrates Hong Kong’s commitment to managing financial risks while promoting innovation. Officials have stressed that the framework adheres to international standards and follows the principle of applying consistent regulation to similar activities and risks.
Christopher Hui, the Secretary for Financial Services and the Treasury, highlighted that the proposal upholds the “same activity, same risks, same regulation” principle. This approach ensures that the framework is in line with global standards and reinforces Hong Kong’s position as a leading financial hub. Eddie Yue, the Chief Executive of the HKMA, noted that the bill incorporates feedback from industry consultations and aims to support sustainable growth within the stablecoin ecosystem.
The bill is scheduled for a first reading in the Legislative Council on Dec. 18. If approved, Hong Kong will join other early adopters such as the European Union and Japan in regulating stablecoins, surpassing jurisdictions like the US, which have yet to implement similar frameworks.
This development underscores Hong Kong’s proactive stance on regulating stablecoins and promoting financial innovation in a responsible manner. As the cryptocurrency industry continues to evolve, clear regulatory frameworks like this bill will play a crucial role in ensuring stability and security for market participants.