Hong Kong Approves Stablecoin Bill, Paving Way for Web3 Growth

• Hong Kong passes Stablecoin Bill, requiring licenses for all issuers.

• Only licensed firms may issue or promote stablecoins to investors.

• New rules mandate reserves, audits, and anti-fraud protections.

In a major step toward regulating digital finance, Hong Kong’s Legislative Council has officially passed the Stablecoin Bill in its final reading on May 21. This law, once approved, will allow institutions to seek a license through the HKMA to release fiat-backed stablecoins in the region. The law now introduces a licensing system for those wishing to issue stablecoins. Officials expect it to be in place by the end of this year.

Hong Kong Enforces Licensing for Stablecoin Issuers

Major stablecoins are backed by real money, either by the United States dollar or by the Hong Kong dollar. Their goal is to maintain a consistent level of value. The new law requires anyone wishing to offer FRS in Hong Kong to be licensed by the HKMA. Same rule applies to stablecoins based on the Hong Kong dollar, despite where the company comes from.

Companies have to strictly meet all the requirements in order to be licensed. As part of this, companies must keep adequate reserves, permit users to exchange stablecoins at equal value and remove customer assets from the business funds. Those offering MIFs must obey regulations for risk management, anti-money laundering, counter-terrorist financing and regular audits, as well as be open about important information.

The central bank will only approve licensed firms to offer stablecoins to individual investors. For protection against fraud, only advertisements backed by valid licenses will be allowed by the network. It remains essential throughout the first six months after the law becomes active which is known as the non-contravention period. People should exercise care when interacting with information about stablecoins.

The Secretary for Financial Services and the Treasury, Mr. Christopher Hui, praised the passage of the law. He explained that the new rules are based on the idea that “same type of business, same risks, same regulator.” He pointed out that the law helps build a solid and fair financial system that safeguards investors and supports responsible change. It is also in line with worldwide guidelines and supports Hong Kong’s status as a top financial center.

Stablecoin Law Aims to Build Trust and User Safety

Mr. Eddie Yue, Chief Executive at the HKMA, also supported the new law. The law, he indicated, forms an environment that is shaped by risks, is adaptable and practical. In addition, it will support the stable and safe building of Hong Kong’s stablecoin market and the wider sector of digital assets.

However, the ordinance on stablecoins will not go into full effect all at once. The rules will be implemented with a transitional arrangement to help businesses learn the requirements and get ready to apply for their license. With industry development, adjusting to new rules can be done easily.

In addition, the Hong Kong government plans to keep improving the virtual asset (VA) sector. Once the rules for issuing stablecoins and trading virtual assets are ready, the government plans to get feedback on the rules for OTC VA trade and storing digital assets. It will issue a second policy bulletin about building virtual assets.

Overall, the stablecoin bill is a welcome development. Its purpose is to safeguard users, foster trust among them and support durable development in this field.