The Hong Kong Monetary Authority has launched a consultation on legislative proposals for the regulation of stablecoin issuers and introduced a "sandbox" arrangement

ChainCatcher news, the Hong Kong Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) jointly published a public consultation document to gather opinions on legislative proposals regarding the regulation of fiat-backed stablecoin issuers. The document states that due to the important role of stablecoins in the Web3 and virtual asset ecosystem, as well as the increasingly close ties between the traditional financial system and the virtual asset market, the government believes there is a need to establish a regulatory framework for fiat-backed stablecoin issuers. As virtual assets become more prevalent, regulating fiat-backed stablecoin issuers in a risk-based and flexible manner can appropriately manage potential monetary and financial stability risks while providing transparency and suitable regulations.

The legislative proposals have taken into account the market and public opinions collected by the HKMA in last year's "Discussion Paper on Crypto Assets and Stablecoins" (Note 1), ongoing discussions with stakeholders, local market conditions and needs, as well as relevant international standards. The key points are as follows:

• (1) Implementing a licensing system through the introduction of new legislation, requiring all eligible fiat-backed stablecoin issuers (Note 2) to obtain a license issued by the Financial Commissioner;
• (2) Stipulating that only designated licensed institutions (Note 3) can provide services for purchasing fiat-backed stablecoins, and only fiat-backed stablecoins issued by licensed issuers can be sold to retail investors;
• (3) Prohibiting promotion: (i) issuance of fiat-backed stablecoins by unlicensed issuers; or (ii) services for purchasing fiat-backed stablecoins provided by non-designated licensed institutions;
• (4) Granting authorities the necessary powers to adjust the scope of regulated stablecoins and activities in response to the rapid changes in the virtual asset market; and
• (5) Providing transitional arrangements to facilitate the smooth implementation of the regulatory framework.

The HKMA will also launch a "sandbox" arrangement to communicate regulatory expectations and provide compliance guidance to issuers intending to issue fiat-backed stablecoins in Hong Kong, while collecting their feedback on the proposed regulatory requirements to facilitate the subsequent implementation of the regulatory framework and ensure that it meets regulatory objectives. Details related to the "sandbox" will be announced separately.