Hong Kong’s Stablecoin Regulation and Licensing

• Hong Kong is implementing a regulatory regime for stablecoins, a class of cryptocurrencies linked to assets.

• The Stablecoins Ordinance will come into effect from August 1, making it illegal to offer unlicensed fiat-referenced stablecoins (FRS) to retail investors or actively market the issue of unlicensed FRS to the public of Hong Kong.

• Companies that want to legally issue stablecoins to users in Hong Kong will have to obtain a license from the Monetary Authority, meet set requirements for managing reserve assets and redemption, asset stabilisation, and processing user requests.

• Companies must also comply with regulations that prevent money laundering and terrorist financing, ensuring their assets are properly disclosed and audited.

• The regulations are not a red carpet for interested parties to begin issuing stablecoins, with the HKMA warning that in the beginning, it would only grant a handful of stablecoin issuer licenses.

• Stablecoins play an important role both within and outside the crypto ecosystem, even if they might not balloon in price like Bitcoin.

• Stablecoins can exhibit volatility despite being pegged to currencies, with sudden drops triggering panic amongst investors.

• Other countries that have started to regulate stablecoins include the U.S., Japan, Singapore, and China.

• Despite the Chinese government’s heavy restriction on crypto-related activities in its jurisdiction, some tech giants hope that Hong Kong’s upcoming regulatory regime will provide an outlet for their own stablecoin ventures.