Hong Kong is moving towards a regulatory framework for stablecoins as its Stablecoins Bill entered the Legislative Council.
After its publication in the Official Journal on December 6, the bill was formally presented to the Council for its first reading on December 18 to launch the legislative process. The bill will go through three readings, involving debate, review and possible amendments, before being presented to the chief executive for final approval.
King & Wood Mallesons’ legal analysis highlights three central aspects of the Stablecoin Bill. First, it establishes a licensing regime for stablecoin issuers, requiring them to obtain authorization from the Hong Kong Monetary Authority (HKMA) and meet strict licensing criteria.
The HKMA will examine the issuer’s management, its resources, the stablecoins themselves, their reserve assets and the mechanisms ensuring price stability. Second, only regulated entities and platforms will be allowed to offer or trade stablecoins in Hong Kong. Third, the bill incorporates consumer protection measures that will affect all market participants, including issuers and distributors.
The implementation of this bill could change Hong Kong’s stablecoin market, reflecting the impact of the European Regulation on Crypto-Asset Markets (MiCA).
The Hong Kong government is stepping up its efforts to attract crypto investors, announcing plans to expand existing tax breaks for private funds and family offices to include crypto investments.
Hong Kong is actively positioning itself as a hub for crypto companies. In June 2023, the government launched a licensing system for cryptocurrency trading platforms, allowing regulated exchanges to offer retail trading services. Three companies – OSL Exchange, HashKey Exchange and HKVAX – have already obtained licenses, and the government expects more to follow soon.
The Securities and Futures Commission is evaluating additional applications as it expects a wave of new exchanges licensed in the coming months.
Currently, a total of 16 companies are awaiting a decision on their VATP application, of which 11 are already operating as “considered approved”, although the SFC advises them to exercise caution against trading with them.
The SFC has completed its first round of on-site examinations of these crypto companies. Julia Leung, CEO of the SFC, confirmed that all VATPs adhering to the commission’s licensing model could expect their applications to be approved.
Leung said the regulator expects to make progress in licensing 11 virtual asset trading platforms (VATPs) currently on its list of potential licensees. He also mentioned that licenses would be issued in batches to improve compliance among crypto exchanges.
