Key Takeaways
- If the bill passes the third reading, it will be sent to the region’s Chief Executive for approval and eventual enactment into law
- Under the proposed law, stablecoin issuers in Hong Kong will be required to obtain a license from the Hong Kong Monetary Authority
Hong Kong is taking significant steps toward regulating stablecoins with the introduction of the Stablecoins Bill to its Legislative Council.
The Stablecoins Bill sets out requirements for stablecoin issuers, outlines conditions for offering stablecoins, and implements marketing restrictions to safeguard consumers. The legislation also aims to address potential risks to the financial system posed by the rapid adoption of digital assets.
The legislative process for the bill involves three readings in the Legislative Council. These stages include detailed discussions, thorough examinations, and potential amendments to refine the proposal. If the bill passes the third reading, it will be sent to the region’s Chief Executive for approval and eventual enactment into law.
Under the proposed law, stablecoin issuers in Hong Kong will be required to obtain a license from the Hong Kong Monetary Authority (HKMA). To qualify for licensing, issuers must meet stringent conditions which includes maintaining a minimum paid-up share capital of HKD 25 million (approximately $3.2 million) and sufficient operational resources to support their activities.
Additionally, issuers must establish a reserve pool of assets for each stablecoin they offer. These reserves must be segregated from other funds and consist of high-quality, highly liquid assets with minimal investment risk, though specific criteria for these assets have not been fully detailed.
The bill defines stablecoins as digital tokens that operate on distributed ledger technology (DLT), are expressed as a unit of account, and claim to maintain a stable value by referencing another asset. However, it explicitly excludes tokens issued by governments, central banks, or their proxies. This distinction ensures that the focus remains on private stablecoins, which have seen significant adoption in decentralized finance (DeFi) and cross-border payment systems.
The proposed legislation also addresses consumer protection. Marketing restrictions are designed to prevent misleading promotions and ensure transparency in stablecoin offerings. Under the proposed regulation, regular independent audits and attestations will also be mandated to enhance accountability and foster trust in the ecosystem. However, the specific auditing standards and processes are yet to be clarified.
The bill further grants the HKMA authority to expand the scope of the framework to include other virtual asset service providers (VASPs), provided such changes are made in consultation with the Financial Secretary and announced through official channels.
