Hong Kong Eases Stablecoin Rules, Initiates Trials with Major Industry Players

July 22, 2024

By Sharan Kaur Phillora

Hong Kong’s financial regulators have announced plans to relax certain stablecoin regulations and launch limited trials with key industry participants. The Hong Kong Monetary Authority (HKMA) revealed that it will prepare a bill to implement a new regulatory regime for stablecoins, which will be submitted to the Legislative Council later this year.

Here’s what we know:

This decision follows a public consultation that concluded in February 2024, receiving 108 submissions from various stakeholders. The feedback has been crucial in shaping the new regulatory framework, which aims to balance innovation with financial stability.

Among the notable changes, the HKMA has reduced the minimum paid-up share capital requirement for stablecoin issuers. The new requirement is set at 1% of the value of the stablecoins issued, down from the initially proposed 2%, with a minimum threshold of HK$25 million.

The HKMA has also provided clarity on guidelines for eligible reserve assets and their custody. Issuers are required to hold reserve assets with licensed banks in Hong Kong, although exceptions may be considered on a case-by-case basis.

In a major move, the HKMA has initiated a regulatory sandbox to allow potential stablecoin issuers to test certain operations with regulatory immunity. The authority is currently processing applications for this sandbox and will announce more details shortly.

The proposed regulatory regime will primarily focus on stablecoins that operate on decentralized ledgers where no single entity has unilateral control over functionality or operation. Any entity issuing stablecoins in Hong Kong will be required to obtain a license, and foreign entities will need to establish a Hong Kong subsidiary with key management personnel in the territory.

Eddie Yue, Chief Executive of the HKMA, expressed optimism about the initiative, stating, “We believe that a well-regulated environment is conducive to the sustainable and responsible development of the stablecoin ecosystem in Hong Kong”.

This move aligns Hong Kong with other major jurisdictions in becoming a leading crypto hub. As Europe’s MiCA stablecoin regime came into force this month and U.S. Congress members actively push forward stablecoin bills, Hong Kong’s latest regulatory adjustments aim to position the city at the forefront of financial innovation while safeguarding investor interests.

About the author

Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.