Hong Kong Pushes Stablecoin Regulation with December 18 Legislative Council Reading

07. Dec 2024 Posted by Bailey S. on News

The Hong Kong government has published its long-awaited Stablecoins Bill in the gazette, marking a critical milestone in the city’s journey toward regulating stablecoins. Scheduled for a first reading in the Legislative Council on December 18, the bill reflects Hong Kong's ambition to balance financial innovation with stability and consumer protection while cementing its status as a virtual asset hub.

A Response to Global Trends and Local Consultations

This publication follows a July consultation led by the Hong Kong Monetary Authority (HKMA), which engaged stakeholders from financial institutions and the virtual asset industry. During this period, three stablecoin issuers were admitted to pilot their use in diverse scenarios, laying the groundwork for the upcoming regulatory framework.

Under the proposed law, only licensed entities will be allowed to issue fiat-backed stablecoins or market them to the public. The HKMA will oversee licensing, supervision, and enforcement to ensure a risk-based regulatory approach that aligns with global standards set by the Financial Stability Board.

Details of the Regulatory Framework

The legislation outlines key elements, including:

  • Minimum Capital Requirements: Stablecoin issuers must maintain a minimum paid-up capital of HK$25 million (approximately US$3.2 million).
  • Risk Management: Issuers are expected to demonstrate robust financial and operational safeguards.
  • Broad Definitions: Stablecoins covered include those operating on distributed ledgers and other similar platforms, ensuring the framework remains adaptable to technological advances.
  • Illegal Activities: Misrepresentation to promote stablecoins is explicitly prohibited.

Law firm King & Wood Mallesons lauded the draft’s comprehensiveness, which spans nearly 300 pages, providing a robust foundation compared to the earlier 30-page consultation paper.

Boosting Hong Kong’s Digital Asset Ambitions

Lawrence Chu, co-founder of Web3-focused IDA, highlighted the transformative potential of this legislation. By integrating Hong Kong dollar-backed stablecoins into the financial system, the framework could reduce cross-border transaction costs, bolster trade, and enhance Hong Kong’s role as a global digital asset hub.

Globally, Hong Kong joins the ranks of early movers like the European Union and Japan in regulating stablecoins. Meanwhile, jurisdictions like Singapore and the UK are drafting their frameworks, and the US remains without sector-specific regulation.

Preparing for the Web3 Future

As Web3 ecosystems evolve, stablecoins are expected to play a larger role in settling high-value transactions. By addressing risks to financial stability, Hong Kong aims to position itself as a leader in this emerging space.

Christopher Hui Ching-yu, Secretary for Financial Services and the Treasury, emphasized that this legislation not only fulfills international obligations but also supports Hong Kong’s vision for virtual asset development. The first reading on December 18 will mark a significant step toward this ambitious goal.