Hong Kong’s financial authorities are taking a significant step towards regulating the stablecoin industry. The Financial Services and the Treasury Bureau (FSTB) recently announced that it will soon publish the results of a stablecoin consultation report, which is part of the region’s legislative proposal to oversee the cryptocurrency sector.
Proposed Regulatory Framework
The FSTB’s statement revealed the key elements of the upcoming regulatory proposal:
- All fiat-referenced stablecoin issuers will be required to obtain a license from the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank.
- Only certain entities, including licensed stablecoin issuers, authorized institutions such as banks, licensed corporations, and licensed crypto trading platforms, will be allowed to sell fiat-referenced stablecoins to retail users.
- The proposal will include rules to oversee stablecoin issuers in areas such as reserve management, stability mechanisms, redemption, and governance.
Paving the Way for Regulation
This expected proposal follows the HKMA’s launch of a stablecoin sandbox in March 2024, which was aimed at facilitating the “formulation of fit-for-purpose and risk-based regulatory requirements” to promote the sustainable and responsible development of the stablecoin issuance business.
“We know that there are a lot of people that are lining up to apply for this Hong Kong stablecoin licensing as well,” said Vincent Chok, the chief executive officer of First Digital, the issuer of the FDUSD stablecoin.
The upcoming release of the stablecoin consultation results is a significant step forward in Hong Kong’s efforts to regulate the cryptocurrency industry, with the goal of fostering a sustainable and responsible ecosystem.