Hong Kong regulators have published a draft regulation of fiat-pegged stablecoin issuers

What’s new? The Hong Kong Monetary Authority (HKMA) together with the Financial Services and the Treasury Bureau (FSTB) of Hong Kong has presented a draft law on the regulation of issuers of stablecoins pegged to fiat currencies (FRS, fiat-referenced stablecoin), involving the introduction of a regulatory sandbox mechanism. Officials attribute the need to introduce regulations to the strengthening of the interconnection of the traditional financial system with the cryptocurrency market and the importance of FRS in the Web 3.0 ecosystem.

Press release

What else is known? The document is open for public discussions, which will continue until February 29, 2024. Officials write that FRS regulation will allow for proper management of risks to monetary policy and financial stability amid the growing adoption of virtual assets.

The document was formed taking into account international standards and the needs of the local market, as well as the outcome of discussions with industry representatives. It envisages mandatory licensing of issuers in the HKMA and a ban on the promotion of FRS issued by unlicensed entities.

The HKMA will also launch a sandbox that will allow for more detailed development of regulatory mechanisms together with market participants. The regulator will provide details on the launch of an experimental legal regime for stablecoin issuers at a later date.

HKMA Chief Executive Eddie Yue said the authority supports financial innovation and the regulatory framework and standards are being introduced to ensure the long-term, sustainable, and responsible development of the virtual asset ecosystem. FSTB Secretary Christopher Hui added that the introduction of the regulation of stablecoins will contribute to the development of the Web 3.0 ecosystem in Hong Kong.

Earlier, Hong Kong’s Securities and Futures Commission (SFC) opened the door for investment firms to accept applications to launch cryptocurrency-based spot exchange-traded funds (ETFs).

Also, Hong Kong-based virtual bank ZA Bank announced the launch of cryptocurrency-to-fiat exchange services for retail investors. ZA serves over 80 Web 3.0 companies and cooperates with licensed HashKey and OSL crypto exchanges.