Hong Kong’s Legislative Council passed the Stablecoins Bill in its third reading in the scheduled Wednesday session. Under the newly passed law, there is now an official licensing framework for all institutions issuing fiat-backed stablecoins in the city.
It is an important milestone toward the regulation of the digital currency market in the increasingly large finance sector in Hong Kong.
The new law requires stablecoin issuers to acquire a license from the Hong Kong Monetary Authority. According to the law, such companies should adhere to firm guidelines in the handling of reserves as well as redemption practices.
They should establish secure mechanisms for the protection of user funds and the stability of the tokens issued.
Issuers must adhere to local anti-money laundering guidelines and terrorism finance standards in order to gain formal approval. There must also be measures for risk control and segregation of customer funds from company reserves.
Such requirements will help build public confidence in electronic payments throughout the financial markets in Hong Kong.
Hong Kong Stablecoin law balances innovation risks
Secretary for Financial Services and the Treasury Christopher Hui underscored the law’s aim at achieving the balance between facilitating innovation and controlling risk.
The law takes a risk-based approach, in that issuers engaged in similar kinds of finance activities would be subjected to similar regulatory treatment.
Johnny Ng, one of the leading members of the bill oversight committee, reiterated the vision for the longer term beyond the passage of the bill.
He was hopeful that the move would unlock the potential for real-life stablecoin use in global trade, retail services, and general transactions. The government hopes the early action will lay the foundations for secure Web3 infrastructure.
Ahead of the regulatory framework, the Hong Kong Monetary Authority introduced a stablecoin sandbox back in March 2023. Some prominent names, such as Standard Chartered Bank, Animoca Brands, and Hong Kong Telecommunications, participated in the pilot.
This recent action comes in tandem with global moves to tighten regulatory control on stablecoins, such as in the U.S. Senate’s advancement of its GENIUS Act. Both jurisdictions seem keen on protecting the financial system while laying the ground for greater digital asset adoption.
