Hong Kong regulators have announced their plans to implement a regulatory framework for issuers of fiat-referenced stablecoins (FRS) operating within the country. The Hong Kong Monetary Authority (HKMA) aims to introduce regulations to foster a robust stablecoin ecosystem in Hong Kong. This initiative comes in response to the increasing adoption of stablecoins among citizens who use them for daily transactions. The new regulations will apply to stablecoin providers both domestically and internationally.
Under the proposed legislative framework, foreign stablecoin providers will be required to establish a physical presence in Hong Kong, maintain custody reserves in local banks, and refrain from paying interest to holders. Additionally, non-Hong Kong incorporated companies seeking a license to operate in Hong Kong must set up a subsidiary in the country. These measures are intended to enhance transparency and accountability among stablecoin providers, ensuring the protection of citizens in the event of business failures or bankruptcies.
The Hong Kong Monetary Authority emphasizes that stablecoins must always be fully backed by reserves held in local banks, maintaining a 1:1 backing for each token issued. The authority also reserves the right to license and supervise fiat-backed stablecoin issuers, allowing for ongoing monitoring and adjustment of regulatory parameters as needed. This approach aims to regulate the growing number of stablecoin issuers in Hong Kong and safeguard the financial interests of its citizens.
The decision to regulate stablecoins in Hong Kong was influenced by the collapse of Terraform Labs and the algorithmic UST stablecoin in 2022, highlighting the need for regulatory oversight in the sector. Despite these regulatory moves, Hong Kong intends to support its economy and attract foreign stablecoin issuers to operate within its jurisdiction. The Hong Kong Securities and Futures Commission has also taken steps to eliminate unlicensed crypto firms operating within the country, adding seven such firms to its alert list in July.
The withdrawal of applications by HTX and Gate.io, among other crypto firms, has sparked discussions around reviewing crypto regulations in Hong Kong. By implementing a regulatory framework for stablecoins, Hong Kong aims to maintain stability in its financial sector and protect citizens from potential financial losses. The regulations will ensure that stablecoin providers adhere to strict guidelines, promoting responsible and sustainable development of the stablecoin ecosystem in Hong Kong.
