Hong Kong process with plan to regulate stablecoin issuers

It has published a consultation paper based on 108 submissions.

Hong Kong is proceeding with plans to implement a regulatory regime for issuers of fiat-referenced stablecoins (FRS) following results of a consultation.

In the consultation paper– based on feedback between December 2023 and February 2024 from 108 entitites– the Hong Kong Monetary Authority (HKMA) and the Financial Services and the Treasury Bureau (FSTB) noted that there was overall support for the policy objectives and key proposals of the proposed regime.

“The majority of respondents agreed that a well-regulated environment is a prerequisite for sustainable and responsible development of the stablecoin ecosystem in Hong Kong,” the HKMA and FSTB stated in the paper.

Amongst amendments and clarifications made based on comments include expanding the proposed definition of stablecoins to specify those “operated on a decentralized distributed ledger or similar technology.”

They also plan to state differing requirements for FRS based on their complexity, with the goal of adequately addressing associated risks. For instance, multi-currency-reference stablecoins may need to demonstrate that they are able to properly manage reserve assets denominated in multiple currencies, amongst others.

Meanwhile, authorities are still exploring whether stablecoin issuers which are incorporated in Hong Kong, but issue stablecoins outside of the city, will fall under the regulation regime. 

“Determining whether an FRS is issued in Hong Kong will depend on the facts and circumstances of each case. We will consider factors such as the FRS issuer’s place of incorporation, the location of its operations, provision of subsequent customer service to FRS users, and whether Hong Kong bank account is used to process issuance and redemption requests. We will provide further guidelines on this matter,” the HKMA and FSTB stated.