Hong Kong Authorities Seek Public Opinion on Stablecoin Issuer Legislation

According to Foresight News, the Hong Kong Financial Services and Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) have jointly released a public consultation document to gather opinions on legislative proposals for regulating stablecoin issuers. The document states that due to the important role of stablecoins in Web3 and the virtual asset ecosystem, and the increasingly close connection between the traditional financial system and the virtual asset market, the government believes there is a need to establish a regulatory regime for fiat stablecoin issuers. As virtual assets become more widespread, regulating fiat stablecoin issuers through a risk-based and flexible approach can appropriately manage potential monetary and financial stability risks and provide transparency and appropriate restrictions. The legislative proposals have taken into account market and public opinions collected from the HKMA's discussion paper on crypto assets and stablecoins published last year, ongoing discussions with stakeholders, local market conditions and needs, and relevant international standards. The key points are as follows: (1) Introduce a new licensing system through new legislation, requiring all eligible fiat stablecoin issuers to obtain a license issued by the Financial Management Commissioner; (2) Specify that only designated licensed institutions can provide fiat stablecoin purchasing services, and only fiat stablecoins issued by licensed issuers can be sold to retail investors; (3) Prohibit the promotion of: (i) fiat stablecoin issuance by non-licensed issuers; or (ii) fiat stablecoin purchasing services provided by non-designated licensed institutions; (4) Grant authorities the necessary powers to adjust the scope of regulated stablecoins and activities in response to rapid changes in the virtual asset market; and (5) Provide transitional arrangements to facilitate the smooth implementation of the regulatory regime. The HKMA will also launch a 'sandbox' arrangement to communicate regulatory expectations and provide compliance guidance to issuers who are interested and have specific plans to issue fiat stablecoins in Hong Kong, while collecting their opinions on the proposed regulatory requirements to facilitate the implementation of subsequent regulatory regimes and ensure that the regime is in line with regulatory objectives. Details of the 'sandbox' will be announced separately.