Hong Kong Introduces Stablecoin Bill to Regulate Issuers

Hong Kong introduces the Stablecoin Bill to regulate fiat-backed stablecoin issuers, ensuring financial stability and transparency in virtual assets.

Hong Kong Secretary for Financial Services and the Treasury, Christopher Hui, presented the second reading of the Stablecoins Bill at a legislative council meeting on December 18. The bill seeks to set out legal requirements that govern fiat-backed stablecoins.

Over the last few years, blockchain technology and virtual assets have become popular. Hong Kong is dedicated to enhancing its legal regulatory environment in virtual assets. The year before last, the government proposed a licensing regime for virtual asset service providers. This system makes them adhere to the provisions of AML and counter-terrorism financing regulations. Some trading platforms have been licensed under this system already.

Fiat currency-backed stablecoins are particularly important in the link between traditional and digital economies. These stablecoins could also become well-established payment instruments. But they also contain risks to financial stability if not well controlled. The government has recognized this and has put forward what is known as the Stablecoins Bill to mitigate these risks.

The bill brings about a licensing regime for any person who provides or markets fiat-backed stablecoins in Hong Kong. This is, for instance, engaging in the creation of stablecoins pegged to Hong Kong dollars or taking an awareness campaign to the general public.

To this end, issuers of stablecoins must have a robust reserve system that guarantees that the assets backing stablecoins are highly liquid and correspond to the number of circulating stablecoins. They must also facilitate the conversion of the stablecoins at face value without outrageous charges and within reasonable time.

Hong Kong Stablecoin Bill Targets Financial Stability and Innovation

It is also important to note that the bill contains provisions related to AML, risk, and transparency. Stablecoins may only be sold by licensed persons, including authorized banks, virtual asset trading platforms, and other licensed institutions, in Hong Kong. This leads to the fact that only credible institutions can take a place in the market.

For proper enforcement of the law, there will be supervisory and investigative responsibilities of the Hong Kong Monetary Authority (HKMA). This involves the provision of regulations and the supervision of issuers, as well as analyzing possible violation cases.

The bill applies Hong Kong’s “same business, same risks, same rules” approach to achieve the appropriate categorization of virtual assets as financial assets. A series of public consultations that took place in the previous year showed that the proposed system would be supported by the public.

Lastly, the Stablecoins Bill is a key step towards a secure and well-regulated virtual asset market in Hong Kong. It aims to balance innovation with financial stability, protecting both investors and the broader financial system.