Hong Kong has proposed regulations for fiat-referenced stablecoins (FRS) with the aim of establishing a regulatory framework to address associated risks. This initiative was introduced in a consultation document by the Financial Services and the Treasury Bureau and the Hong Kong Monetary Authority (HKMA). The consultation period is scheduled to run until February 29, 2024.
The core proposal implies that companies actively promoting the issuance of FRS to the public in Hong Kong must obtain a specific license from the Hong Kong Monetary Authority (HKMA). The criteria for obtaining this license are robust and stringent. Including requirements such as full reserve backing, segregation, secure custody of assets, and transparent reporting.
A key element of the proposal is the obligation for stablecoin issuers to maintain reserves “at least equal to the par value” of all circulating cryptocurrencies. This is implemented to ensure that stablecoins are fully backed, contributing to their stability and reliability.
Hong Kong to Impose Strict Controls on Stablecoins
Furthermore, the significance of segregating and securely custoding reserve assets was emphasized. This approach aims to enhance user fund protection and prevent any misuse. The proposal also underscores the need for transparent disclosure and regular reporting by stablecoin issuers. Fostering accountability and transparency within the stablecoin ecosystem.
It is noteworthy that the proposed regulations explicitly exclude algorithmic stablecoins from obtaining an HKMA license. This approach underscores a preference for stablecoins backed by strong reserves rather than those based on algorithms.
As part of the requirements to obtain the HKMA license. Stablecoin issuers will also need to establish a registered office in Hong Kong. This measure seeks to ensure that all activities related to stablecoin issuance are conducted responsibly. Aligning with Hong Kong’s efforts for effective oversight.