Hong Kong is reportedly planning to implement a new regulation requiring all stablecoin issuers to secure pertinent licenses. The proposal will push issuers to obtain a Hong Kong Monetary Authority (HKMA) permit for all active stablecoins.
CoinTelegraph reported that Hong Kong is planning to accept and regulate fiat-referenced stablecoins (FRS). However, issuers must get specific licenses in the country. The proposal is said to be one of the main topics in a new consultation paper that was published on Wednesday, Dec. 27, by the HKMA, the Financial Services, and the Treasury Bureau (FSTB).
Criteria for Securing the Required HKMA License
Based on the outlined guidelines for obtaining the HKMA license, the stablecoin issuers must agree to the disclosure and regular reporting, must fully support all circulating stablecoins with reserves that are at least equal to the par value, and must offer segregation and safekeeping of reserve assets. The paper indicated that algorithmic stablecoins are not qualified for a license.
The consultation period has a set deadline of Feb. 29, 2024. Moreover, all issuers of stablecoin will be asked to set up a registered office in Hong Kong, and it must operate with a management team consisting of a chief executive, senior management team, and other key personnel.
Aim of the Proposed Registration for a License
Hong Kong’s Secretary for Financial Services and the Treasury, Christopher Hui, explained that with licensing in place, the country can manage better and reduce the risks associated with stablecoin development.
“With the implementation of the licensing regime for VA trading platforms from June this year, the legislative proposal to regulate FRS is another important measure facilitating Web3 ecosystem development in Hong Kong,” he said.
As per The Block, under the proposed system, only stablecoins issued by licensed issuers could be offered to retail investors; thus, it will be safer to do business. Johnny Ng, a local lawmaker, further stated, “If these global stablecoin companies do not apply for a license in Hong Kong within the specified period, relevant regulatory authorities should consider how such international stablecoins could be traded on licensed exchanges in Hong Kong, otherwise, it may affect the overall operations and trading volume of crypto transactions, leading to unintended consequences in the market.”