Hong Kong releases consultation results, paving way to require licenses for stablecoin issuers

Hong Kong’s financial authorities have released the consultation conclusions on a licensing regime for stablecoin issuers as part of the region’s legislative proposal to oversee the industry.

In a joint statement, the Hong Kong Monetary Authority — the de facto central bank — and the Financial Services and the Treasury Bureau said that the majority of respondents agreed that a regulatory regime should be introduced for fiat-referenced stablecoin issuers. 

The HKMA and the FSTB said that they received 108 submissions from industry participants and professional institutions during the two-month public consultation that ended in February.

The key part of the proposal is to require all FRS issuers to obtain a license from the HKMA. “We will consider factors such as the FRS issuer’s place of incorporation, the location of its operations, provision of subsequent customer service to FRS users, and whether Hong Kong bank account is used to process issuance and redemption requests,” the regulator said in the conclusions report .

Some respondents also sought clarity about the scope of the regulatory regime to cover FRS issuance. “The HKMA will take into account multiple factors in determining whether a person is ‘actively marketing’ an issuance of FRS to Hong Kong public,” the conclusions report said — adding that such factors would include the language used in marketing messages, the target audience and the domain name in use.

Also, some have raised concerns about the need to maintain full backing at all times. The regulators responded that the amount of FRS issued “must always be fully backed by reserve assets at any given point in time,” as insufficient reserve assets could potentially lead to a run on those FRS and “thereby affecting confidence in the ecosystem.”

The regulators will finalize the legislative proposal and introduce a bill to the Legislative Council as soon as possible, according to the statement.

The expected proposal follows the HKMA’s March announcement of a sandbox for stablecoin issuers in a bid to pave the way for future relevant regulations. The HKMA is currently processing the applications for the sandbox and plans to announce the list of sandbox participants soon.

Vincent Chok, CEO of First Digital, the issuer of FDUSD stablecoin, told The Block in March that the company saw a “good” market demand. “We know that there are a lot of people that are lining up to apply for this Hong Kong stablecoin licensing as well,” he said.