Hong Kong Stablecoin Bill Targets Financial Stability and Innovation

Hong Kong introduces the Stablecoin Bill to regulate fiat-backed stablecoin issuers, ensuring financial stability and transparency in virtual assets.

Hong Kong is taking a proactive approach to regulating virtual assets within its jurisdiction. In line with this effort, the Stablecoins Bill was presented for its second reading at a legislative council meeting on December 18. This bill aims to establish a legal framework for fiat-backed stablecoins.

With the increasing popularity of blockchain technology and virtual assets, Hong Kong is making a concerted effort to enhance its legal and regulatory landscape in this domain. In a bid to foster a robust virtual asset ecosystem, the government introduced a licensing regime for virtual asset service providers two years ago. This regime ensures adherence to anti-money laundering (AML) and counter-terrorism financing regulations, with several trading platforms already licensed under this framework.

Recognizing the significance of fiat currency-backed stablecoins in bridging the traditional and digital economies, the government has identified their potential to emerge as widely accepted payment instruments. However, to mitigate any risks to financial stability that may arise from insufficient oversight, the Stablecoins Bill serves as a crucial measure.

The bill proposes a licensing regime for any individual or entity that provides or markets fiat-backed stablecoins within Hong Kong. This includes activities such as creating stablecoins pegged to the Hong Kong dollar or engaging in awareness campaigns among the general public.

Crucially, stablecoin issuers will be required to maintain a strong reserve system, ensuring that the assets backing stablecoins are highly liquid and correspond to the volume of circulating stablecoins. Additionally, they must facilitate the conversion of stablecoins at face value within a reasonable timeframe and without excessive charges.

Hong Kong Stablecoin Bill Strikes a Balance between Innovation, Financial Stability

It is worth noting that the bill also incorporates provisions related to AML, risk and transparency. In Hong Kong, only licensed persons, including authorized banks, virtual asset trading platforms and other licensed institutions, will be permitted to sell stablecoins, ensuring that only credible institutions participate in the market.

To effectively carry out the bill's provisions, the Hong Kong Monetary Authority (HKMA) will be entrusted with supervisory and investigative responsibilities. This entails issuing regulations, supervising licensed issuers and investigating potential cases of non-compliance.

In line with Hong Kong's approach of "same business, same risks, same rules," the bill aims to categorize virtual assets as financial assets, reflecting the risks they pose. Throughout the previous year, extensive public consultations were conducted, revealing support for the proposed regime among the community.

Ultimately, the Stablecoins Bill forms a pivotal step towards establishing a well-regulated and innovative virtual asset market within Hong Kong. It strives to strike a balance between fostering innovation and ensuring financial stability, ultimately protecting both investors and the broader financial system.