Hong Kong advances legislation on stablecoins and crypto trading

abdelaziz Fathi

Hong Kong is moving forward with legislation to regulate stablecoins and crypto over-the-counter (OTC) trading in the latest effort to develop a legal framework to service the city’s digital-asset industry.

Hong Kong regulators published a consultation paper to gather public views on a legislative proposal to regulate issuers of stablecoins back in December. Additionally, earlier this month, the FSTB initiated a consultation on establishing a licensing framework for OTC crypto trading service providers.

Christopher Hui, the Secretary for Financial Services and the Treasury, said that the government plans to draft and submit legislation for both stablecoin and OTC crypto trading regulations based on the feedback from these consultations.

The consultation concerning OTC crypto trading services is expected to conclude on April 12, while the stablecoin regulation is set to end on February 29. The proposal suggests that all fiat-referenced stablecoin issuers must acquire a license from the Hong Kong Monetary Authority (HKMA).

Hui highlighted the growing concern over crypto-related crimes, noting a notable increase in such cases over the past few years. According to his statement, Hong Kong saw 3,415 crypto-related criminal incidents in the last year, a substantial rise from previous years, with the involved amounts soaring to nearly HK$4.4 billion ($562.6 million).

Hong Kong’s initiative to implement stablecoin regulations as early as this quarter has caught the attention of several key players in the financial sector. Among them is the international arm of Chinese asset manager Harvest Fund Management Co.

This regulatory initiative is part of Hong Kong’s plans to establish a supervised framework for stablecoin issuers through a licensing system. The move comes as lawmakers are calling for tightened regulations to address the loophole that allows unlicensed platforms to operate in a regulatory vacuum. The regulator clarified that only stablecoins issued by licensed entities could be offered to retail investors.

Under the proposed rules, any issuer of a stablecoin pegged to one or more fiat currencies in Hong Kong must be locally incorporated, have a management presence in the city, and establish a settlement mechanism. This mechanism involves maintaining a reserve of high-quality, highly-liquid assets with appropriate custody arrangements.

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