Regulation
HKMA and FSTB Announce Licensing Regime for Stablecoin Issuers
The Hong Kong Monetary Authority (HKMA) and the Financial Services and Treasury Bureau (FSTB) have taken the first step in regulating such tokens, unveiling a new regulatory framework for US dollar-pegged stablecoins.
In the meantime, the new framework was released following a two-month consultation, which ended in February and attracted 108 contributions from industry stakeholders and institutions.
The new rules now state that all FRS issuers must be licensed by the HKMA. The licensing criteria include factors such as marketing language, target population and domain names to verify whether an entity is actively promoting FRS to the Hong Kong public. Stable currency Issuers must also ensure that full reserve asset support is maintained at all times to avoid potential bank runs and ensure ecosystem stability.
Industry reaction to the regulatory framework
The survey found that there was a good understanding of the need for regulation in the industry, as the majority of respondents approved of the measures. Regulators also stressed that stablecoins should be fully backed by reserve assets to avoid situations where stablecoins are referenced to fiat. They pointed out that the lack of adequate reserves can contribute to stablecoin runs and thus the stability of the entire system.
Under the new framework, the HKMA is also handling applications for a sandbox program for stablecoin issuers. Launched in March this year, this is a policy to establish an innovation sandbox to prepare the legal framework for the future. Details of the sandbox program participants are expected to be announced in the coming weeks.
Market impact and global context
The new rules are expected to bring more stablecoin issuers to Hong Kong. Vincent Chok, CEO of First Digital, highlighted that there is clear market interest and demand for the cryptocurrency licensing process, with this new regulation in line with positive trends in the cryptocurrency market.
Concurrently, Bitcoin ETF Spots in Hong Kong and Australia have attracted quite a bit of investment. Hong Kong-based Bitcoin ETFs added 28.6% more Bitcoin to their portfolios between June 21 and July 13, holding 4,941 BTC in total.
These events come against the backdrop of changes in the global market, such as a large-scale sell-off by the German government and renewed interest in the global BTC ETF market, which currently stands at 1.05 million BTC.
The Future of Cryptocurrency Regulation in Hong Kong
Hong Kong authorities continue to work on the draft law and plan to submit it to the Legislative Council as soon as possible. This approach is in line with Hong Kong’s overall plan to become a cryptocurrency and blockchain hub with adequate consumer protection and financial stability.
Implementing a comprehensive set of rules and regulations in stablecoins could provide a model for other jurisdictions. In this way, the Hong Kong model could become a benchmark for other jurisdictions, as authorities have focused on developing innovation while maintaining control over the sector. This move could lead other regions to create similar frameworks that will create a safer environment for digital assets.