Hong Kong to Introduce Stablecoin Licensing Regime to Enhance Crypto Stability

By: Isha Das

Hong Kong's financial regulators have concluded a consultation period over a licensing program initiative for fiat-referenced stablecoin (FRS) providers. This consultation, which ended in February, received 108 submissions from various stakeholders, including market participants, industry associations, and professional organizations, indicating strong engagement from the community.

The Monetary Authority (HKMA) and the Financial Services and Treasury Bureau (FSTB) announced this development in a joint statement on July 17, highlighting the substantial support for the regulatory regime. They noted that a majority of respondents agreed on the necessity of regulations for FRS issuers due to the rapid rise in digital assets. This development aims to manage potential monetary and financial stability risks and ensure transparent and appropriate safeguards.

Regulators emphasized that fiat-referenced stablecoins, compared to other types of stablecoins such as commodity-linked or precious metal-linked stablecoins, pose higher and more imminent monetary and financial stability risks due to their potential to be developed as a commonly acceptable means of payment. Therefore, stringent regulatory requirements and implementation arrangements were widely supported by respondents.

Christopher Hui, FSTB Secretary, stated that the licensing regime would strengthen Hong Kong's digital asset framework, aligning with international standards to promote financial stability and mitigate potential losses. The financial regulators are now considering all feedback to finalize the legislative proposal for the regulatory regime, aiming to introduce a bill to the Legislative Council soon.

This announcement follows the launch of Hong Kong's stablecoin regulatory sandbox program in March, with HKMA currently processing applications for the sandbox. The list of participants will be announced soon, reflecting Hong Kong's proactive approach to becoming a hub for crypto innovation. The region remains one of the few globally focused on regulating the crypto industry, making it a favorable destination for industry participants.