Hong Kong regulators propose tougher rules for sale of stablecoins to retail investors

Hong Kong's regulatory bodies are suggesting stricter laws that necessitate stablecoin issuers to secure a licence from the city's central bank prior to catering to retail customers. This proposal is part of Hong Kong's ongoing efforts to refine its regulations for the virtual-asset industry.

Stablecoin issuers, who strive to maintain a stable value relative to one or more fiat currencies, will be required to be licensed by the Hong Kong Monetary Authority (HKMA) if they wish to sell to retail investors in Hong Kong. This is according to a new consultation paper that the HKMA initiated on Wednesday in collaboration with the Financial Services and the Treasury Bureau (FSTB). Companies lacking a licence will be prohibited from issuing such fiat-referenced stablecoins (FRS) in Hong Kong, and from issuing a stablecoin pegged to the value of the Hong Kong dollar or actively promoting their FRS to the Hong Kong public.

This legislative proposal is in line with Hong Kong's intensified efforts to establish itself as a virtual asset and Web3 hub, while setting up safeguards for the volatile sector, which has witnessed several cryptocurrency firm collapses over the past two years. The collapse of TerraUSD, an algorithmic stablecoin pegged to the US dollar, in 2022 underscored the urgency to implement such a regime sooner rather than later.