Hong Kong has released a stablecoin report that was influenced by Binance and Circle
Hong Kong is establishing new regulations for stablecoin issuers, including the requirement to maintain reserve assets in licensed local institutions and maintain physical facilities within the city.
The government of Hong Kong has recently released a comprehensive consultation report on stablecoins, which includes input from prominent industry participants such as Circle and Binance.
They are attempting to regulate the stablecoin market by mandating that issuers establish physical offices in Hong Kong and transfer reserve assets to licensed institutions in the city.
Additionally, these issuers are prohibited from providing consumers with interest. The Financial Services and Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) collaborated on the development of this report.
Hong Kong’s regulatory regime for fiat-referenced stablecoin (FRS) issuers is the primary concern. The report was produced following a two-month public consultation period that concluded in February 2024. During this period, 108 submissions were received from market participants, industry associations, business and professional organizations, and other stakeholders.
The majority of respondents concurred with the necessity of a regulatory framework for FRS issuers. Additionally, the respondents expressed their support for the proposed regulatory requirements and implementation plans, with a few suggesting additional improvements.
According to Christopher Hui, Secretary of Financial Services and the Treasury, “This new licensing regime for FRS issuers will construct upon our current regulatory framework for VA trading platforms.” It is consistent with international standards and mitigates financial stability risks associated with the issuance of FRS.
Additionally, the FSTB and HKMA are currently in the process of finalizing the legislative proposal in light of the feedback they have received. They intend to expedite the introduction of a measure to the Legislative Council.
Also, the HKMA is currently in the process of assessing applications for the stablecoin issuer sandbox. They intend to disclose the inventory of sandbox participants in the near future.
This simulator will enable issuers to test their stablecoins in a controlled environment, thereby assisting in the resolution of any issues prior to the full-scale deployment.
The consultation report specifies numerous prerequisites for stablecoin issuers. At first, they must establish tangible companies in Hong Kong. This ensures that they have a genuine presence in the city, rather than a purely virtual one.
Secondly, they are required to hand over their reserve assets to licensed institutions in Hong Kong. This is to ensure that the assets are secure and well-managed.
Lastly, they are unable to generate interest among consumers. According to reports, this will mitigate any potential financial instability or undue risks.
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