Hong Kong Advances Stablecoin Regulation with New Bill

The Hong Kong government has moved forward with its stablecoin bill, publishing it in the gazette and bringing the proposed regulatory framework closer to becoming law. This step aims to balance financial stability, consumer protection, and Hong Kong's push for virtual asset innovation.

This development follows a public consultation in July between the city's financial office, the Hong Kong Monetary Authority (HKMA), and industry stakeholders. Three stablecoin issuers were also granted approval to test stablecoins in different scenarios during the same period.

Under the proposed regime, any individual or entity wishing to issue fiat-referenced stablecoins or tokens maintaining a stable value against the Hong Kong dollar must be licensed by the HKMA. Additionally, those actively marketing such tokens to the public will also need a license. The HKMA will be responsible for overseeing, investigating, and enforcing the regime’s provisions.

The Stablecoins Bill is set to be introduced to the Legislative Council for its first reading on December 18.

Christopher Hui Ching-yu, Secretary for Financial Services and the Treasury, explained, “The legislative proposal is essential for Hong Kong in fulfilling our obligations as a member of the Financial Stability Board. This risk-based proposal aims to promote a robust regulatory environment, which is in line with Hong Kong’s approach to virtual-asset development.”

The Chief Executive of the Hong Kong Monetary Authority, Mr Eddie Yue, stated, "We have undertaken extensive consultations and given due consideration to the views of the industry when formulating the details of the regulatory regime. We believe that a well-regulated environment is conducive to the sustainable and responsible development of the stablecoin ecosystem in Hong Kong."

The draft bill includes a definition of stablecoins, licensing application procedures, and transitional provisions for current stablecoin issuers. It also outlines illegal activities, such as misrepresenting information to persuade others to acquire a stablecoin.

Licensed issuers will be required to maintain adequate financial resources, liquid assets to meet obligations, and robust risk-management measures. For instance, the minimum paid-up capital is set at HK$25 million (US$3.2 million), as reported by South China Morning Post.

According to Andrew Fei, a partner at law firm King & Wood Mallesons, the proposed definition of stablecoins is "broad and future-proof," covering stablecoins on distributed ledgers as well as those on other similar repositories.

Lawrence Chu, co-founder of IDA, a Hong Kong-based Web3 digital asset firm, remarked, “The legal framework will open up enormous opportunities. Stablecoins can provide cost-effective and efficient cross-border transactions, offering businesses 24/7 digital payment services.” He added that integrating Hong Kong dollar-backed stablecoins into the financial system would enhance cross-border trade and solidify Hong Kong's position as a leading global digital asset hub.

As the Web3 ecosystem continues to expand, Fei notes, “there will be more usage and larger transactions that will be settled or paid using stablecoins.” Consequently, Hong Kong’s regulators remain vigilant of the potential risks to financial system stability.