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Hong Kong introduces progressive regulatory framework for stablecoin issuers

Posted:Jan 09, 2024 12:27 Category: Blockchain , Crypto , Fintech , Posted by Lea Hogg

In a bid to keep pace with Web3 innovation and the evolving space of virtual assets, Hong Kong’s regulatory authorities have unveiled ambitious plans to establish a comprehensive regulatory regime for stablecoin issuers.

The Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) collaborated to release a public consultation paper during the last week of December, outlining a groundbreaking legislative proposal tailored for the regulation of stablecoin issuers within the region.

Licence from HKMA

Key to this proposal is the requirement for stablecoin issuers to obtain a licence from the HKMA, empowering them to issue stablecoins linked to the value of one or more fiat currencies within Hong Kong.

As a safeguard, licensees would be obligated to maintain a reserve pool of assets, comprising instruments like bank deposits in corresponding currencies and short-term debt securities, under secure custody arrangements. This measure ensures that users can seamlessly redeem stablecoins for fiat currency at par.

Furthermore, licensees must adhere to stringent governance, risk management, and anti-money laundering/counter-terrorist financing (AML/CFT) measures.

Fiat-referenced stablecoin

The move to bring fiat-referenced stablecoin (FRS) issuers under regulatory oversight aligns with the Hong Kong government’s vision of effectively managing potential monetary and financial stability risks. It also aims to provide a transparent regulatory framework amid the growing prevalence of virtual assets, fostering investor confidence and industry development.

Regulatory sandbox

Eddie Yue, the Chief Executive at HKMA, said that the need for a dynamic regulatory approach that balances financial stability and innovation. He announced the HKMA’s intention to launch a regulatory “sandbox” to facilitate effective communication of supervisory expectations with entities interested in issuing stablecoins in Hong Kong.

The proposed regulatory framework has garnered positive feedback from industry leaders. Ronald Iu, CEO of ZA Bank, a prominent virtual bank based in Hong Kong, expressed enthusiasm for the regulatory suggestions. He welcomed the joint public consultation paper and applauded the introduction of the sandbox arrangement. Iu emphasized that industry feedback during the consultation process would be instrumental in strengthening the regulatory framework, providing greater security, and contributing to establishing Hong Kong as a global hub for Web3.

Hong Kong Web3 ecosystem

As a technology-driven bank, ZA Bank aims to be the preferred banking partner for Hong Kong’s Web3 ecosystem. Iu highlighted the bank’s existing support for over 80 Web3 companies, offering essential business banking services and serving as the banking partner for licensed virtual asset trading platforms in Hong Kong. Leveraging their experience, ZA Bank is ready to provide support to both regulatory authorities and the industry, firmly believing that virtual assets will become a significant asset class for future investments within a secure regulatory environment.

The CEO expressed eagerness to seize the opportunities presented by Web3, offering users new investment possibilities in a regulated and secure environment.

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