Hong Kong has proposed a new regulatory framework for stablecoin issuers, like Tether’s USDC and Circle’s USDC, requiring them to obtain a license to operate in the city.
The move comes as lawmakers are calling for tightened regulations to address the loophole that allows unlicensed platforms to operate in a regulatory vacuum.
This proposal, detailed in a consultation paper published by the Hong Kong Monetary Authority (HKMA) and the Financial Services and the Treasury Bureau, aims to oversee the stablecoin industry more effectively. 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 licensed by the HKMA. Additionally, these licensed issuers will need to 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.
Responding to the proposal, Hong Kong lawmaker Johnny Ng highlighted the presence of major global stablecoins already circulating in the market. He raised concerns about the implications for these stablecoins if their issuers do not obtain a local license within the specified timeframe. Ng cautioned that this could impact the operations and trading volume of cryptocurrency transactions in Hong Kong.
Hong Kong has been actively welcoming crypto firms and encouraging banks to collaborate with them. In June, the city officially initiated a crypto licensing regime for virtual asset trading platforms, permitting licensed exchanges to offer retail trading services. Interestingly, this approach to cryptocurrency regulation contrasts with the more restrictive stance of mainland China.
Earlier this month, the HKMA and the Securities and Futures Commission said they are ready to accept applications for spot crypto exchange-traded funds (ETFs). The public can provide feedback on this legislative proposal until February 29, 2024.
Elsewhere, lawmakers Doreen Kong Yuk-foon and Johnny Ng Kit-chong criticized the SFC’s reactive approach and highlighted the need for proactive measures to prevent fraudulent crypto platforms from operating unchecked. They suggested utilizing the Telecommunications Ordinance to ban suspicious sites, as is done in other developed countries, and urged the SFC and police to collaborate more closely to protect the public.
The SFC, while acknowledging many fraud incidents, defended its monitoring system, stating that time is needed for a proper investigation.
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