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Hong Kong’s Regulation on Stablecoin Licensing

Hong Kong opens up to stablecoins:

  • Hong Kong plans to require licenses for stablecoin issuers.
  • Only stablecoins issued by licensed entities will be allowed for retail investors.
  • A sandbox will be established for interested parties to issue stablecoins in Hong Kong.

A New License for Stablecoin Issuers?

Hong Kong, a major financial hub, is proposing new regulations for stablecoin issuers.

This regulation would require issuers to obtain an “HKMA” license and meet strict requirements, including “local management presence” and “stabilization mechanisms,” in order to offer their services.

For example, issuers must demonstrate reserves that correspond at least to the total amount of stablecoins in circulation to ensure that each stablecoin unit is fully backed by fiat currencies.

“Only stablecoins issued by licensed issuers could be offered to retail investors,” the regulator stated.

the regulator stated.

This initiative, presented in a jointly published consultation document by the Hong Kong Monetary Authority and the Financial Services and the Treasury Bureau, aims to strengthen control over stablecoins pegged to fiat currencies.

This approach is part of a broader effort to regulate the cryptocurrency sector while fostering innovation in this ecosystem.

A Controversial Proposal

Adopting this regulation could have significant implications for the cryptocurrency market in Hong Kong. On one hand, it aims to protect investors and preserve financial stability while providing a clear framework for stablecoin operations.

On the other hand, concerns have been raised regarding the potential impact on globally circulating stablecoins and overall cryptocurrency transactions in Hong Kong.

Hong Kong Prepares for Bitcoin Spot ETFs

Unlike mainland China’s broader crackdown on cryptocurrency trading and mining, Hong Kong is welcoming crypto businesses. The city has introduced a licensing regime for exchanges, allowing licensed holders to offer retail trading services.

In addition, Hong Kong is preparing to accept applications for cryptocurrency exchange-traded funds (ETFs), including requirements that the regulator “greenlight ETFs holding over 10% crypto assets.”

So far, no Bitcoin spot ETFs have been approved by the SEC.

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