Hong Kong's Legislative Council passed the Stablecoin Ordinance in May 2024, introducing a licensing regime for issuers of fiat-pegged stablecoins. This move further strengthens the city's regulatory framework for digital asset activities. The ordinance will take effect on August 1, with the Hong Kong Monetary Authority (HKMA) beginning to accept license applications. The HKMA is currently consulting the market on detailed implementation guidelines.
HKMA Chief Eddie Yue: Stablecoins Are Payment Tools, Not Speculative Instruments
In a recent article, HKMA Chief Executive Eddie Yue outlined the regulatory approach toward stablecoins. He emphasized that stablecoins are not investment or speculative tools but rather blockchain-based payment mechanisms with no inherent appreciation value. As bridges between traditional finance and digital assets, stablecoins require careful risk management—a growing focus for international regulators.
Yue noted that Hong Kong's regulatory framework aligns with the Financial Stability Board's (FSB) Global Regulatory Framework for Crypto-Asset Activities. Given stablecoins' emerging risks, licensing standards will be stringent, with only a handful of licenses expected initially.
Key Requirements for Licensed Stablecoin Issuers
Licensed issuers must demonstrate:
- Real-world use cases and sustainable business models.
Robust compliance capabilities, including:
- Reserve asset management.
- Price stabilization mechanisms.
- Redemption policies.
- Technology security and AML measures.
- Viable business plans with sufficient resources for long-term operations.
Yue stressed that the HKMA will evaluate all applications consistently and rigorously. Hong Kong aims to balance local needs with international standards, fostering responsible growth of digital assets to reinforce its status as a global financial hub.
FAQ Section
Q: When does Hong Kong’s stablecoin licensing regime begin?
A: The Stablecoin Ordinance takes effect on August 1, 2024, with the HKMA accepting applications thereafter.
Q: How many stablecoin licenses will be issued?
A: Due to high standards, only a small number of licenses are expected in the initial phase.
Q: What are the main risks associated with stablecoins?
A: Risks include reserve mismanagement, liquidity shortfalls, and technological vulnerabilities, necessitating strict oversight.