Proposes introduction of authorization system for stablecoin issuance

On the 27th, the Hong Kong Monetary Authority (HKMA) jointly with the Financial Treasury Board (FSTB) issued a consultation paper on introducing regulations for stablecoin issuers, and solicited public comments.

The Consultation Paper is a proposal for the Stablecoin Regulation Act, and includes feedback from the general public and industry participants on the deliberation document on crypto assets (virtual currency) and stablecoin regulation published by the HKMA last year, market conditions and needs, This is said to have taken international standards into account.

connection:Hong Kong Monetary Authority issues consultation document on virtual currency and stablecoin regulation

The core of the proposal is the introduction of a system for financial authorities to approve stablecoin issuers.

According to the agreement, if a “stablecoin that refers to the value of one or more fiat currencies” (FRS: fiat currency referenced stablecoin) is issued in Hong Kong, the issuer must obtain a license from the HKMA. be. Regarding the provision of FRS, only entities licensed by the authorities may provide FRS in Hong Kong.

In other words, the issuance of FRS, including stablecoins denominated in Hong Kong dollars, and the “active promotion” of FRS to Hong Kong citizens will be required to obtain a license from the financial authorities.

regulatory sandbox

Eddy Yue, who oversees the HKMA, expressed the view that, “In the ever-evolving virtual currency market, stablecoins can serve as an interface between traditional finance and the virtual currency market.”

He also pointed out that regulation is necessary to support the long-term development of the cryptocurrency ecosystem. “A sandbox system will be introduced to establish a channel for exchange of views between stablecoin issuers and the HKMA, with the aim of promoting a regulatory system,” the statement said.

Through the sandbox system, the HKMA will communicate supervisory expectations and compliance guidance to companies planning to issue FRSs in Hong Kong. It will also serve as a forum to hear opinions from companies on proposed regulatory requirements.

Impact on the virtual currency market

On the other hand, the consultation document mentions the following about stablecoins (USDT, USDC, etc.) that are popular worldwide in the virtual currency market, and Hong Kong lawmakers have voiced concerns.

Hong Kong regulators say FRSs issued by unlicensed companies are “not suitable for use by the general public” due to “the uncertainty of the risks involved”. To ensure user protection, such FRSs will be made available exclusively to professional investors by entities licensed to sell FRSs, it said.

MP Johnny Ng pointed out that the proposal in the consultation document “does not take into account its application to individual transactions or convergence with international stablecoin companies.” He questioned the lack of clarity on how licensed Hong Kong exchanges would respond, given that many stablecoins are already being used in international cryptocurrency transactions. .

He warned that if this issue is not addressed, it will have a major impact on cryptocurrency trading and “lead to adverse effects on the market.”

The deadline for submitting public comments on the consultation document is February 29, 2024.

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