As the cryptocurrency market continues to develop, governments and regulators are also actively formulating relevant regulations to regulate this emerging industry. The Hong Kong SAR government is also facing the urgent task of regulating cryptocurrencies.
To this end, the Hong Kong Monetary Authority (HKMA) is developing a regulatory framework for stablecoins and is expected to introduce relevant regulations in 2025. At the same time, the Hong Kong Securities and Futures Commission (SFC) has also cracked down on seven unlicensed cryptocurrency exchanges. This series of regulatory actions highlights the Hong Kong authorities' emphasis on the cryptocurrency market and their determination to promote more standardized development of the entire industry.
In July 2024, the Hong Kong Monetary Authority (HKMA) concluded a months-long public consultation aimed at collecting opinions from all parties and preparing for the formulation of relevant regulations in the future. Industry insiders believe that this marks that Hong Kong has officially entered a new stage of stablecoin regulation.
Hong Kong’s Financial Services and Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) have published a consultation summary on a new regulatory regime for issuers of fiat reference stablecoins (FRS): Most respondents agreed that a regulatory regime should be introduced for issuers of fiat reference stablecoins. The stablecoin regime will “focus primarily on representations of value based on ledgers that operate in a decentralized manner” where “no one has unilateral power to control or materially change its functionality or operation”.
Therefore, the regulator concluded that anyone issuing stablecoins in Hong Kong must obtain a license. They will consider all feedback and finalize the legislative proposal for the regulatory regime, and plan to submit the bill to the Legislative Council soon.
According to the latest news from the Hong Kong Monetary Authority, the regulatory framework for stablecoins is expected to be officially launched in 2025. The purpose of this regulatory measure is to ensure that the issuance and trading of stablecoins are more transparent and to avoid illegal activities such as money laundering and tax evasion. According to official statements, Hong Kong believes that the rise of stablecoins may bring systemic risks, so it is necessary to establish a sound regulatory mechanism in advance to maintain the stability of the financial market.
HKMA said that this regulatory framework will involve multiple aspects such as issuer access, liquidity and capital requirements, and risk management. All stablecoins issued or circulated in Hong Kong will be included in the regulatory scope, and issuers will need to obtain a license issued by HKMA. At the same time, the regulator will also conduct strict review and supervision on the issuance, reserve management, risk control and other aspects of stablecoins. This will not only regulate the stablecoin market, but also help enhance Hong Kong's status as an international financial center.
In addition, the HKMA stated that the Hong Kong government attaches great importance to the regulation of stablecoins mainly for the following reasons:
Risk management: As a new type of digital currency, stablecoins are linked to traditional legal tender, which carries certain systemic risks. Once the stablecoin issuer is poorly managed or faces a liquidity crisis, it may have an impact on the entire cryptocurrency market and even the financial system. Therefore, regulating stablecoin issuers is crucial to preventing financial risks.
Investor protection: Stablecoin market participants mainly include individual investors and institutional investors. If there is a lack of effective supervision, some lawless elements may deceive investors by issuing stablecoins without actual support, causing significant losses to investors. Therefore, implementing licensing access and operational supervision on stablecoin issuers will help better protect the rights and interests of investors.
Promoting innovation: Appropriate regulation can not only effectively control risks, but also create a good development environment for compliant stablecoin issuers. This will help promote the innovative application of stablecoins in payment, asset management and other fields, and inject new impetus into the development of Hong Kong's financial technology.
It is worth noting that in the process of formulating stablecoin regulations, Hong Kong will also actively draw on the experience of other regulatory sandboxes, and strive to provide an appropriate regulatory environment for this emerging financial instrument and promote its healthy development. It can be seen that the Hong Kong government hopes to further play the positive role of stablecoins in the future financial system on the basis of ensuring financial stability and investor protection.
At the same time, the Hong Kong Securities and Futures Commission (SFC) has also launched a severe crackdown on unlicensed cryptocurrency exchanges. According to the latest news from the SFC, the commission has included seven cryptocurrency exchanges that have been operating without its approval on the "warning list". These exchanges include Coinhub, Iquant, Kairon, LEXG, LQEX, Metafox and Unikoins.
The SFC stated that these exchanges provided cryptocurrency trading services in Hong Kong without its approval, which seriously violated Hong Kong's current financial regulatory laws. The SFC required these exchanges to immediately stop operating in Hong Kong and warned investors to stay away from these illegal platforms.
According to the current Securities and Futures Ordinance in Hong Kong, anyone who engages in "regulated activities" without the approval of the SFC may be sentenced to up to 7 years in prison and a fine of HK$5 million. Therefore, the SFC's crackdown on these 7 exchanges reflects the determination and strength of the Hong Kong government in cryptocurrency regulation.
Hong Kong has long been considered one of the most attractive cryptocurrency centers in Asia. However, with the frequent occurrence of related cases in recent years, the authorities are determined to further strengthen supervision, regulate industry order, and safeguard the rights and interests of investors.
In general, Hong Kong is accelerating the construction of a cryptocurrency regulatory system to enhance Hong Kong's status as an international financial center and to achieve the goal of Hong Kong becoming a cryptocurrency center. It is expected that in the next few years, the regulation of stablecoins and cryptocurrency exchanges in Hong Kong will be further improved and deepened. We continue to look forward to and pay attention to it.
