On December 6, the Hong Kong government announced the highly anticipated (draft stablecoin ordinance). This legislation provides a detailed regulatory framework for issuers of fiat-referenced stablecoins (FRS), aiming to position Hong Kong as a leader in the global virtual asset sector.
This landmark initiative directly addresses core issues such as financial stability risks related to FRS, user protection needs, and regulatory clarity. By implementing these measures, Hong Kong not only aims to enhance public trust in the stablecoin ecosystem but also seeks to unleash the full potential of virtual assets and their underlying blockchain technology in financial innovation and economic growth.
(Draft stablecoin ordinance) presents the main regulatory requirements for the issuance and operation of stablecoins:
1. Capital requirements
• Must hold at least 25 million Hong Kong dollars in registered capital, or an equivalent amount in approved foreign currency. Licensed institutions should have sufficient financial resources to fulfill their financial obligations and meet other financial resource standards.
2. Regulation of reserve assets
• For each stablecoin, an independent reserve asset portfolio must be established to ensure that its market value is at least equal to the face value of the unredeemed stablecoins.
• The reserve asset portfolio should be managed separately from the institution's other assets.
• Reserve assets should be chosen as high quality, high liquidity, and low-risk investments.
• Implement strict risk management and auditing processes.
• Publicly disclose the management, risk control, and audit results of reserve assets.
3. Stablecoin redemption mechanism
• Licensed institutions must provide unconditional rights for stablecoin redemption, without imposing unreasonable restrictions.
• Redemption requests must be processed promptly and paid in the agreed asset form after deducting reasonable fees.
• In the event of insolvency of licensed institutions, holders are entitled to proportionately redeem their held stablecoins.
4. Personnel qualification requirements
• Licensed institutions must ensure that all shareholders have clearly defined identities and possess the necessary qualifications.
• Key positions such as CEO, directors, and stablecoin managers must be held by suitable candidates.
• Senior management should possess the necessary expertise and experience to perform their duties.
5. Risk management policies
• Licensed institutions must establish comprehensive risk management policies to ensure information security, prevent fraud, and possess emergency response capabilities, while also adhering to policies approved by the financial management commissioner.
6. Anti-money laundering and counter-terrorism financing
• Licensed institutions must establish measures to prevent money laundering and terrorist financing related to stablecoins, and ensure compliance with the (Anti-Money Laundering and Counter-Terrorist Financing Ordinance) and related measures.
7. Purpose and robustness of stablecoin issuance
• The purpose, business model, and operational arrangements of licensed institutions issuing stablecoins must be robust to mitigate potential risks.
8. Business scope restrictions
• Licensed institutions should focus on stablecoin business and obtain approval from the financial management commissioner before engaging in other business activities, ensuring that other business activities do not pose significant risks to stablecoin operations.
9. Information disclosure requirements
• Licensed institutions must publish white papers providing comprehensive and transparent information about stablecoins, and disclose information related to complaint handling and compensation mechanisms, stablecoin management, and risk assessment.
10. Complaint handling mechanism
• Licensed institutions must establish and implement effective complaint handling and compensation mechanisms to ensure that holders can conveniently and efficiently resolve their issues.
11. No interest policy
• Licensed institutions must not pay interest on stablecoin transactions, nor allow any form of interest payment.
12. Orderly scaling down and recovery plans
• An orderly scaling down mechanism must be established to ensure that stablecoin redemptions can occur in an orderly manner. Licensed institutions should develop appropriate emergency plans.
To effectively implement the system, the (draft bill) also proposes to grant the financial management commissioner necessary regulatory, investigative, and enforcement powers.
The Secretary for Financial Services and the Treasury, Xu Zhengyu, stated that this legislative proposal is crucial for fulfilling Hong Kong's obligations as a member of the Financial Stability Board. Adhering to the principle of 'same activities, same risks, same regulation,' the legislative proposal emphasizes a risk-based approach and aims to create a robust regulatory environment, which is also consistent with Hong Kong's regulatory policy on virtual assets.
The President of the Monetary Authority, Yu Wai Man, stated that the legislative proposal has undergone extensive consultation and fully considered industry opinions when determining the details of the regulatory framework. A robust regulatory environment is believed to help promote the sustainable and responsible development of Hong Kong's stablecoin ecosystem.
This comprehensive regulatory framework aims to ensure the stability, safety, and transparency of the stablecoin ecosystem while protecting the rights and interests of relevant stakeholders. The (draft bill) is scheduled for its first review in the Legislative Council on December 18, and its future implementation will be an important step in promoting the further development of Hong Kong's virtual asset ecosystem.
Through this legislation, Hong Kong demonstrates a firm determination to balance compliance and innovation in the global virtual asset sector.
The English version of the report can be read on the official website:
https://www.beosin.com/resources/hong-kong-to-introduce-and-unveil-stablecoin-bill
