Hong Kong has just rolled out a big consultation report on stablecoins, with input from major industry players like Binance and Circle.

They’re trying to regulate the stablecoin market, requiring issuers to set up physical offices in Hong Kong and hand over reserve assets to licensed banks in the city.

Plus, these issuers aren’t allowed to offer interest to users.  This report is a joint effort by the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA).

It’s all about implementing a regulatory regime for fiat-referenced stablecoin (FRS) issuers in Hong Kong. 

The report follows a two-month public consultation period that ended in February 2024, during which they received 108 submissions from market participants, industry associations, business and professional organizations, and other stakeholders.

Most respondents agreed on the need for a regulatory regime for FRS issuers. The respondents also backed the proposed regulatory requirements and implementation plans, with a few suggesting further enhancements.

Christopher Hui, Secretary for Financial Services and the Treasury, said that: 

“This new licensing regime for FRS issuers will build on our existing regulatory framework for VA trading platforms. It aligns with international standards and addresses financial stability risks linked to FRS issuance.”

The FSTB and HKMA are now working on finalizing the legislative proposal, considering all the feedback received. They want to introduce a bill to the Legislative Council as soon as possible.

The HKMA is also busy processing applications for the stablecoin issuer sandbox. They plan to announce the list of sandbox participants some time soon.

This sandbox will allow issuers to test their stablecoins in a controlled environment, helping to iron out any kinks before full-scale rollout.

The consultation report lays out several requirements for stablecoin issuers. First, they must set up actual physical companies in Hong Kong. This makes sure they have a real presence in the city, not just a virtual one.

Second, they must entrust their reserve assets to licensed banks in Hong Kong. This is to make sure the assets are safe and properly managed.

Last, they cannot provide interest to users. This will reportedly prevent any potential financial instability or undue risks.