The Hong Kong government has launched a public consultation on a proposed legal framework for regulating stablecoin issuers. Stablecoins are digital tokens pegged to fiat currencies or other assets widely used in the virtual asset ecosystem.
The proposal, jointly issued by the Hong Kong Monetary Authority (HKMA) and the Financial Services and Treasury Bureau (FSTB), aims to address the potential risks of stablecoin to monetary and financial stability. It adopts a flexible and risk-based approach, focusing on fiat-referenced stablecoins (FRS) that have a significant presence in Hong Kong.
According to the proposal, FRS issuers must obtain a license from the Monetary Authority (MA) and comply with specific requirements, such as capital adequacy, governance, risk management, and consumer protection. Moreover, only specified licensed entities would be allowed to provide FRS, and retail investors would only have access to licensed FRS.
Further, the proposal would impose advertising restrictions. It has prohibited unlicensed and non-specified licensed entities from promoting FRS issuance; in other words, they can’t promote their services or any connected companies training people for these courses.
HK Takes Bold Step With Stablecoin Regulation & Sandbox Approach
Along with the proposal, the HKMA will also introduce a sandbox arrangement to facilitate two-way dialogue between the supervisor and entities that may issue FRS in Hong Kong. The sandbox will define regulatory expectations for compliance issues and monitor FRS’s development and performance.
This public consultation is open until Feb 29, 2024. The government welcomes your comments from the industry and general public through designated channels of submitting feedback.
Secretary for Financial Services and the Treasury Christopher Hui said this proposal would boost the Web3 ecosystem. The HKMA’s Chief Executive, Eddie Yue, also stressed the need to define legal borders for this virtual asset area clearly.
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