On June 23, Eddie Yue, Chief Executive of the Hong Kong Monetary Authority (hereinafter referred to as the "HKMA"), published an article entitled "The Stability and Sustainable Development of Stablecoins". Eddie Yue said that the Hong Kong Stablecoin Ordinance (hereinafter referred to as the "Ordinance") will come into effect on August 1, when the HKMA will begin to accept applications for licenses. Eddie Yue said that the Ordinance further improves the regulatory framework for digital asset activities in Hong Kong to safeguard monetary and financial stability and consolidate and enhance Hong Kong's status as an international financial center.
Eddie Yue admitted that although he was pleased to see the public's interest in stablecoins, he also wanted to cool down stablecoins so that everyone could look at stablecoins more objectively and calmly. He said that considering that stablecoins are relatively new products, the risks involved in the issuance business, the protection of users, and the market's carrying capacity and long-term development, the licensing has a very high threshold, and the HKMA expects that at most only a few licenses will be granted in the initial stage. Licensed stablecoin issuers must have real application scenarios, operate their businesses in a robust and sustainable manner, and also need to establish trust with market participants to make their stablecoins recognizable.
The following is the original text:
In May this year, the Legislative Council passed the Stablecoin Ordinance, which introduced a licensing system for stablecoin issuers anchored to legal tender in Hong Kong. The Ordinance further improves the regulatory framework for digital asset activities in Hong Kong to safeguard monetary and financial stability and consolidate and enhance Hong Kong's status as an international financial center. The Ordinance will come into effect on August 1, when the HKMA will begin accepting license applications. At present, the HKMA is consulting the market on the specific guidelines for the implementation of the Ordinance and strives to establish the guidelines as soon as possible.
The latest development of stablecoins in the international market
While Hong Kong has completed the legislative work, there have been new developments in overseas markets: the European Union has implemented the "Markets in Crypto-Assets Regulation" (MiCA) in 2024; the United States is also discussing bills related to stablecoins and has made positive progress; a major stablecoin issuer was listed in the United States in early June, and its stock price recorded a good increase after listing. In a blink of an eye, from the "currency circle" to the financial circle and then to society, the term "stablecoin" has suddenly heated up - the most basic knowledge popularization, application in various scenarios, subversion of traditional payments, and even strategic significance and other comments and analyses have emerged in various media.
As the executor of the stablecoin regulatory system, we are certainly happy to see the public's interest in stablecoins, but due to the responsibilities of the regulator, I also want to cool down so that everyone can look at stablecoins more objectively and calmly. The role and benefits of stablecoins have been described in various public documents during the legislative process. With the recent heated discussions, I believe that everyone has a certain understanding of them. I will not discuss them here. I will focus on some of our ideas on risks, supervision and future license approval.
First of all, the attributes of stablecoins. Stablecoins are not tools for investment or speculation, but one of the payment tools using blockchain technology. They do not have room for appreciation. Taking cross-border payment as an example, in addition to stablecoins, other new payment tools include the CBDC (central bank digital currency) network established by some central banks, tokenized deposits planned to be issued by some international banks, and cross-border connections of fast payment systems. These payment tools have their own characteristics and different levels of maturity. Their future development prospects are largely determined by market forces.
As a payment tool, stablecoins are the interface between traditional finance and digital assets. As stablecoins are expected to be used more widely, how to properly control various inherent and spillover risks is gradually becoming the focus of international supervision. The HKMA has been actively participating in the work of international regulatory organizations, including the Global Regulatory Framework for Crypto-Asset Activities published by the Financial Stability Board (FSB) under the G20 in 2023. The framework provides a set of guiding international principles on how to regulate stablecoins, and Hong Kong's regulatory system is basically based on this.
The HKMA is currently leading the FSB's review of the implementation of the above framework around the world. Stablecoins are relatively new financial instruments. They have both the attributes of traditional financial instruments and their own special features. For example, their anonymity and ease of cross-border use bring challenges in risk management, especially in anti-money laundering. Therefore, learning from each other's regulatory measures and exchanging experiences at the international level, and gradually establishing cross-border regulatory cooperation, will help us create an environment that is conducive to the healthy and orderly development of stablecoins worldwide and reduce financial risks.
Only a few stablecoin licenses were granted in the early stage
As an international financial center, Hong Kong is one of the regions that has established a regulatory system for stablecoin issuers earlier. The Stablecoin Ordinance adheres to the principle of "same activities, same risks, same supervision". It not only complies with international regulatory requirements, but also fits the local situation. While addressing risks such as financial stability, money laundering, and investor protection, it also provides a stable foundation for the industry's prudent and sustainable development.
Taking into account the fact that stablecoins are relatively new products, the risks involved in the issuance business, the protection of users, and the carrying capacity and long-term development of the market, there is a very high threshold for licensing. We expect that at most only a few licenses will be granted in the initial stage. Licensed stablecoin issuers must have real application scenarios and operate their businesses in a robust and sustainable manner. They also need to establish trust with market participants to make their stablecoins recognizable.
From a compliance perspective, stablecoin issuers need to have sufficient supporting facilities, key capabilities and experience in different areas, such as reserve asset management and asset security systems, effective price stabilization mechanisms, comprehensive and feasible redemption policies, as well as capabilities in technology security, risk management and anti-money laundering, etc. If the application scenarios of stablecoins involve other regions, the license applicant must have a comprehensive compliance plan and sufficient resources to ensure that it and its business partners hold the necessary licenses and comply with the relevant laws and regulations of Hong Kong and other regions when conducting stablecoin-related activities.
From the perspective of market development, the business sustainability of stablecoin issuers is affected by various factors, including user scale, scope of application scenarios, partner network and interest rate environment. In order to promote responsible and sustainable development of the market, license applicants must prove that they have specific and feasible business plans and sufficient technical and financial resources to support operations so that their businesses can continue to operate stably. Specifically, applicants need to propose how to solve the pain points in economic and financial activities through stablecoins in a practical way, and explain how to maintain sufficient usage in compliance with regulations and have sufficient resources to continue to operate regardless of whether the market is in good or bad times.
Gradually establish a regulatory system that suits local conditions
The HKMA launched the "Stablecoin Issuer Sandbox" at the beginning of last year, aiming to understand the business model of institutions that plan to issue fiat stablecoins in Hong Kong, convey regulatory expectations and provide guidance. It should be emphasized that entering the "Sandbox" is not a prerequisite for applying for a stablecoin issuer license in the future; on the other hand, even if a participating institution has entered the "Sandbox", it does not necessarily mean that it will obtain a license. We will carefully consider all license applications in accordance with consistent and strict standards.
Hong Kong is gradually establishing a regulatory system that is both in line with local conditions and in line with international standards and practices to promote the healthy, responsible and sustainable development of digital assets in Hong Kong and further consolidate Hong Kong's position as an international financial center. As major regions around the world gradually promote regulatory systems related to stablecoins, Hong Kong will continue to work with the international community to jointly promote financial stability and innovation.
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Anais
Kikyo