Hong Kong passes the stablecoin issuer bill, laying a legal foundation for industry development.

On May 21, 2024, the Hong Kong Legislative Council officially passed the "Stablecoin Issuer Ordinance Bill," providing the first complete regulatory framework for the stablecoin industry. The ordinance is expected to take effect within this year and stipulates that three types of activities related to stablecoins require a license: issuance of fiat stablecoins in Hong Kong, issuance of Hong Kong dollar stablecoins in any region, and actively promoting the issuance of fiat stablecoins to the public in Hong Kong.

According to the regulations, individuals or entities that intend to issue or operate "designated stablecoins" in Hong Kong must apply for a license from the Hong Kong Monetary Authority. Applicants must meet a series of minimum standards, including capital strength, risk management, corporate governance structure, and internal control systems. For example, the equity requirement for licensees is at least HKD 25 million.

Once the license is granted, it will remain valid unless revoked or the licensee loses its qualification. If the licensee does not meet the minimum standards or encounters significant issues, the financial management commissioner may revoke or suspend the license, and if necessary, may appoint a statutory manager to take over the business to protect the public interest.

The regulations also stipulate that only designated licensed institutions can sell fiat stablecoins in Hong Kong, and only fiat stablecoins issued by licensed issuers can be sold to retail investors. These designated licensed institutions include stablecoin issuers licensed by the Financial Commissioner, banks, institutions holding a Type 1 license issued by the Securities and Futures Commission, and virtual asset trading platforms licensed in Hong Kong.

For unlicensed activities involving regulated stablecoin operations or unauthorized sales of designated stablecoins, the regulations stipulate a maximum fine of 5 million HKD and 7 years of imprisonment. For summary conviction, a fine of 500,000 HKD and 2 years of imprisonment may be imposed, and for ongoing violations, an additional fine of up to 100,000 HKD may be imposed for each day.

The regulations also require licensed issuers to maintain a 100% reserve and to properly separate and safeguard reserve assets from their own assets. Stablecoin holders have the unconditional right to redeem stablecoins at face value, and no fees may be charged for the redemption. Furthermore, licensed issuers must adhere to a strict compliance framework, including anti-money laundering, risk management, information disclosure, and audit requirements.

In addition to legislation, the Hong Kong Monetary Authority has also launched a stablecoin issuer sandbox program. As of February 2024, three groups of participants have entered the sandbox for testing, namely a consortium of Standard Chartered Hong Kong, Anqi Group, and Hong Kong Telecommunications, JD Coin Chain Technology (Hong Kong), and Yuan Coin Innovation Technology.

Industry insiders have responded positively to the passage of this bill. Some legislators stated that this is the starting point for building Web3 infrastructure and that there should be further promotion of the application of stablecoins in areas such as physical retail and cross-border trade in the future. At the same time, there are also suggestions to consider including assets like offshore renminbi within the scope of underlying assets and to explore the possibility of directly distributing the investment returns of stablecoins to holders.

Many relevant companies have also expressed support for this. A blockchain technology company announced that it will provide comprehensive support for the Hong Kong stablecoin and its reserve asset project, helping to build on-chain infrastructure for the issuance, circulation, and management of stablecoins. A licensed virtual asset trading platform believes that this regulation will have a profound impact on the development of the digital asset market, providing strong development momentum.

Overall, the passage of the "Stablecoin Issuer Regulation Draft" marks an important step for Hong Kong in the field of digital finance, laying a solid legal foundation for the regulated development of the stablecoin industry.