Hong Kong is facing a new phase in regulating cryptocurrencies. The city’s financial authority is unveiling a proposal for issuers of “stablecoin cryptocurrencies based on fiat currencies” to obtain regulatory licenses.
Hong Kong looks toward stablecoin licensing
A recent consultation paper jointly published by the Central Bank of Hong Kong and the Financial Services and Treasury Bureau proposes that stablecoin issuers would be required to obtain a license from the Hong Kong Monetary Authority (HKMA) if their tokens reference fiat currencies.
The new proposal introduces strict conditions for licensees, requiring local registration and the introduction of an effective stabilization mechanism. One of the requirements will be to maintain a pool of high-quality liquid reserve assets.
Regulators firmly emphasize that only stable cryptocurrencies issued by licensed issuers will be allowed to be offered to retail investors. The decision follows consideration of public opinion, as well as an earlier discussion paper from 2022. There are also plans to introduce a “sandbox” for interested parties who want to issue stablecoins in Hong Kong. Details of this initiative will be revealed soon. Public feedback on the proposed legislative changes is to be collected until February 29, 2024.
Need for oversight
Among the proposals are also suggestions to give regulators the “necessary powers” to adjust stablecoin parameters and intervene in the event of circumstances that warrant such action.
Johnny Ng, a Hong Kong activist, expressed concerns about the circulation of global stablecoin cryptocurrencies in the local market. He stressed that regulators should actively monitor the market and ensure compliance with local regulations, even if global companies do not apply for licenses in Hong Kong.
Cryptocurrencies in Hong Kong
In contrast to mainland China’s approach, Hong Kong is trying to be more open to cryptocurrency companies. It has already introduced a licensing system for virtual asset trading platforms, allowing exchanges to offer retail services.
Recently, the HKMA and the Securities and Futures Commission announced their readiness to accept applications for ETFs. Some experts indicate that Hong Kong may be one of the first regions in Asia to allow bitcoin spot ETFs, subject to prior approval of such funds in the United States. This opens up new prospects for the city as the cryptocurrency capital of this part of the world.
