Hong Kong’s proposed stablecoin rules would be ‘extremely challenging’ for global issuers like Tether and USDC

The Hong Kong government has proposed new regulations for stablecoins, sparking both optimism and concern. The city is striving to become a hub for virtual assets, but the stringent rules may pose challenges for even the largest market players. The proposed regulations are somewhat stricter than those in Singapore, particularly regarding the minimum paid-up capital requirement of HK$25 million (US$3. 2 million). Chengyi Ong, Head of APAC Policy at Chainalysis, suggests that the framework reflects Hong Kong's intention to set a high standard for fiat-referenced stablecoins (FRS), acknowledging their potential for widespread adoption.

The proposed rules stipulate that companies without a license cannot sell stablecoins to Hong Kong's retail investors or actively market their FRS in the city. The requirements include holding reserves at least equal to the value of issued stablecoins and having an incorporated entity in Hong Kong, with a CEO, senior management team, and key personnel all based in the city. Ben Hammond, a partner at Ashurst in Hong Kong, believes it will be extremely challenging for companies to obtain a license under the proposed regime.

Tether, the world's largest stablecoin by market capitalisation, already operates in Hong Kong. However, its parent company is incorporated in the British Virgin Islands, and the leadership team appears to no longer operate out of Hong Kong. This raises questions about whether Tether will seek a license. Circle, the operator of the world's second-largest stablecoin, USD Coin (USDC), commends the Hong Kong government on its proposed rules and is reviewing the framework for opportunities to collaborate with regulators. However, Andrew Fei, a partner at King & Wood Mallesons in Hong Kong, warns that the localisation requirements could be burdensome for stablecoin issuers that operate globally.