Hong Kong has proposed it will accept and regulate fiat-referenced stablecoins (FRS), but issuers will be obliged to obtain a specific local license.

This is one of the main points of a consultation paper published on Dec. 27 by the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA). 

The consultation period ends on Feb. 29, 2024. The legislation proposal spells out the definition of fiat-referenced stablecoins and requires any companies ​​that “actively market their issuance of FRS to the public of Hong Kong” to be licensed by the HKMA.

The criteria for obtaining an HKMA license will include full backing of all circulating stablecoins with reserves “at least equal to the par value,” segregation and safekeeping of reserve assets, disclosure and regular reporting. The document states that algorithmic stablecoins won’t qualify for a license.

Stablecoin issuers will also have to open a registered office in Hong Kong with a chief executive, senior management team and key personnel in place.

With the relevant licensing in place, the risks associated with stablecoin development could be managed appropriately, the Secretary for Financial Services and the Treasury, Christopher Hui, said:

“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.” 

In December, the HKMA and the Securities and Futures Commission (SFC) jointly expressed their readiness to receive applications for the authorization of various funds, including Virtual Asset Spot exchange-traded funds (VA Spot ETFs), alongside the existing crypto futures ETFs.

Source