Earlier today, Hong Kong’s financial regulators—the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA)—released a joint statement about a new regulatory framework for stablecoins, a type of cryptocurrency designed to minimize the volatility of the price, typically tied to a reserve asset like the U.S. dollar.
However, Hong Kong Legislative Council member Johnny Ng has expressed concerns about this regulatory proposal in a Dec. 27 post on social media platform X (formerly Twitter).
Stablecoin regulation
Under the regulatory proposal, Hong Kong wants to oversee the activities of fiat-referenced stablecoins (FRS) and mandates issuers of these assets to obtain local licensing to operate.
The license will necessitate stablecoin issuers to back their assets fully, maintaining high-quality and highly liquid reserves with minimal risks. Furthermore, these reserves must remain separate from the issuers’ other assets.
“The licensee would also need to comply with relevant governance, risk management and AML/CFT measures. We also intend to put in place necessary guardrails for entities other than the stablecoin issuers who would like to offer or distribute stablecoins. In particular, only stablecoins issued by licensed issuers could be offered to retail investors,” the regulators stated.
Additionally, the proposal mandates that these firms establish a local presence within Hong Kong. This local entity should include a Chief Executive, senior management team, and key personnel based in the country.
The proposal invites public feedback and contributions until February 29, 2024, and follows a prior discussion paper regarding stablecoins published by the HKMA in 2022.
Meanwhile, these regulatory efforts further indicate Hong Kong’s pro-crypto regulations designed to position it as a crypto hub. Last week, CryptoSlate reported that Hong Kong’s Securities and Futures Commission (SFC) and HKMA revealed their readiness to accept applications for spot crypto exchange-traded funds (ETFs).
Concerns
In his statement on X, Ng emphasized the importance of regulators acknowledging the presence of major global stablecoins like Tether (USDT), USD Coin (USDC), etc., already in circulation, potentially failing to seek licensing.
According to him, if these international stablecoin companies do not apply for licenses in Hong Kong, the regulatory authorities should explore how such coins could be traded on licensed exchanges.
He noted that a failure to address this could disrupt crypto transactions and reduce trading volumes, leading to unintended repercussions in the market.
Additionally, Ng highlighted concerns about the policy’s ambiguity regarding stablecoin applications and potential transaction fees.
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