On May 21, the Hong Kong Legislative Council passed the (Stablecoin Regulation Draft) today to establish a licensing system for fiat stablecoin issuers in Hong Kong and improve the regulatory framework for virtual asset activities in Hong Kong. The regulation is expected to take effect within this year, giving the industry adequate time to understand the requirements under the licensing system. The licensing system also includes a transition period arrangement to allow the industry to apply for licenses and make appropriate business arrangements in accordance with the regulation.
(Stablecoin Regulation) After implementation, anyone issuing fiat stablecoins in Hong Kong during business operations, or issuing fiat stablecoins claiming to be pegged to the value of the Hong Kong dollar in Hong Kong or elsewhere, must apply for a license from the Financial Management Commissioner. Relevant parties must comply with provisions regarding reserve asset management and redemption, including properly segregating client assets, maintaining a sound stability mechanism, and processing redemption requests from stablecoin holders at face value under reasonable conditions. Relevant parties must also meet a series of requirements related to anti-money laundering and counter-terrorist financing, risk management, disclosure regulations, and auditing and suitable candidates. The Financial Management Commissioner will consult further on the detailed regulatory requirements of the system in a timely manner.
The licensing system will provide better protection for the public and investors. The regulation only allows designated licensed institutions to sell fiat stablecoins in Hong Kong, and only fiat stablecoins issued by licensed issuers can be sold to retail investors. Additionally, to prevent fraud, at any time (including a six-month non-violation period), only advertisements regarding licensed fiat stablecoin issuance will be allowed. Citizens should pay attention to the above matters and remain cautious when receiving advertisements or information related to fiat stablecoins.
The Secretary for Financial Services and the Treasury of Hong Kong, Xu Zhengyu, stated that the regulation adheres to the principle of 'same activities, same risks, same regulation', focusing on risks and striving to create a robust regulatory environment that not only meets international regulatory requirements but also provides a stable foundation for Hong Kong's virtual asset market, promotes the sustainable development of the industry, protects users' rights, and consolidates Hong Kong's position as an international financial center.
The President of the Hong Kong Monetary Authority, Yu Weimen, stated that the regulation establishes a risk-based, pragmatic, and flexible regulatory system. It is believed that a sound and appropriate regulatory environment can create favorable conditions to support the healthy, responsible, and sustainable development of Hong Kong's stablecoins and digital asset ecosystem.
The Hong Kong government stated that it will continue to support the development of the virtual asset industry. With the implementation of the regulatory system for virtual asset trading platforms and stablecoin issuers, the government will next consult on over-the-counter trading and custody services for virtual assets and will issue a second policy declaration on the development of virtual assets.