Stablecoin Regulation Comes to Hong Kong with New Licensing Rule

New Law Brings Stablecoin Licensing to Hong Kong

The Legislative Council of Hong Kong has established a new law concerning fiat-referenced stablecoins (FRS). A formal licensing system is introduced with this step. According to the law, any FRS issuer must get a license from the Hong Kong Monetary Authority (HKMA). The city wants to become a global center for digital assets, and this is a big step in that direction. It also illustrates Hong Kong's heightened attention to investor safety and financial stability.

In order to receive a license, FRS issuers must meet many conditions. These include managing reserves effectively, offering redemption at par value, and separating client monies. Along with meeting the standards for appropriate behavior and openness, they also have to follow anti-money laundering protocols. These requirements are intended to preserve the stability and dependability of the market. They also align Hong Kong's legislation with global standards for finance.

Christopher Hui, Secretary of the Treasury and Financial Services, described the purpose of the new ordinance. He claims that it functions on the principle of "same activity, same risks, same regulation." Adopting a risk-based approach is the goal. Hui claims that this regulation gives Hong Kong a solid platform on which to grow its digital asset market. It demonstrates how the city's viewpoint on cryptocurrencies has evolved.

Source: X

Hong Kong’s Changing View on Crypto

Hong Kong was cautious to adopt cryptocurrency in recent years. Following a number of scandals, including the 2023 collapse of the fraudulent exchange JPEX, that changed. Authorities have since endeavored to restore confidence. That endeavor includes the new law. It demonstrates Hong Kong's readiness to encourage the rise of cryptocurrencies while simultaneously attempting to shield regular investors from fraud and abuse.

Only licensed companies will be allowed to issue FRS in Hong Kong. These licensed products will also be the only ones that can be marketed to the public. Advertisements from unauthorized issuers will be banned. This rule will apply even during the six-month grace period before enforcement begins. The HKMA intends to further discuss the specifics with members of the public and business professionals.

Hong Kong's stablecoin market is still little in comparison to the rest of the world. However, the new law provides structure to an area that is devoid of explicit regulations. According to Justin d'Anethan of the token advising company Liquifi, the bill provides issuers with clarity. It establishes guidelines for reserves, redemption, and licensing. He emphasized that the new structure is welcoming to established financial institutions wishing to get into the market. He did concede, however, that Hong Kong is not yet a significant participant in the world's stablecoin movements.

Source: X

In Hong Kong's over-the-counter trading shops, Tether remains the most popular cryptocurrency option. However, the stablecoin industry is still dominated by U.S. markets, particularly when it comes to commodities backed by the US dollar. Meanwhile, a national stablecoin law is being drafted by U.S. politicians. Recently, the Senate advanced the GENIUS Act. It would establish a clear legal framework for stablecoins in the United States if it were approved by the House and signed by President Trump.

Cities like Hong Kong, Singapore, and Dubai used to set the standard for crypto policy, claims d'Anethan. However, over the past six months, the United States has taken significant actions that have changed the world's attention. He claimed that although the US was once thought to be hostile to cryptocurrency, it is now spearheading regulatory initiatives in novel ways.

Later this year, Hong Kong's stablecoin regulation is anticipated to go into effect. To assist both new and existing issuers in adjusting, transitional measures will be used. The new structure is a component of a broader change in the city's approach to cryptocurrency. Hong Kong has moved past being a spectator. It is proceeding with increased openness and well-defined regulations.