Hong Kong has put forth a proposal to accept and regulate fiat-referenced stablecoins (FRS), with a requirement for issuers to obtain a specific local license. The Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) jointly published a consultation paper on December 27, outlining key points of the proposal.
HKM Licensing for Stablecoin Issuers
The consultation period is scheduled to conclude on February 29, 2024. The legislative proposal defines fiat-referenced stablecoins and mandates that companies actively promoting the issuance of FRS to the public in Hong Kong must secure a license from the HKMA.
The criteria for obtaining an HKMA license include ensuring full backing of all circulating stablecoins with reserves at least equal to the par value, segregation and safekeeping of reserve assets, as well as mandatory disclosure and regular reporting. Algorithmic stablecoins are explicitly excluded from qualifying for a license. Additionally, stablecoin issuers are required to establish a registered office in Hong Kong, complete with a chief executive, senior management team, and key personnel.
Christopher Hui, the Secretary for Financial Services and the Treasury, emphasized that with the implementation of the licensing regime for virtual asset (VA) trading platforms starting in June of the current year, the legislative proposal for regulating FRS represents another significant measure to facilitate the development of the Web3 ecosystem in Hong Kong. This regulatory approach aims to appropriately manage the risks associated with stablecoin development.
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