Consultation on legislative proposal to implement regulatory regime for stablecoin issuers and announcement on introduction of sandbox arrangement

With the growing market and rising role of stablecoins in the industry, FSTB and HKMA have published a consultation paper on regulating its issuers, especially FRS issuers in the light of implementing appropriate supervision to ensure financial stability in this area. The basis for this consultation paper was the „Discussion Paper on Crypto-assets and Stablecoins“ (see eventid=14353) from January 2022, international standards and the market conditions and needs.
The proposal from FSTB and HKMA covers the following:
– a clear scope of what instruments can be classified as „stablecoins“ and/or „FRS“, and which regulations are to be implemented on these instruments, to avoid „double“ supervision
– all FRS issuers that either operate in HK or issue HKD-referenced stablecoin, should be licensed by the HKMA, with clear expectations about criteria for obtaining a license
– FRS can only be offered to retail investors if licensed by HKMA and only „licensed FRS issuers, authorised institutions, licensed corporations and licensed virtual asset trading platform“ are allowed to offer this product
– forbidding the marketing of unlicensed FRS or those issued by unlicensed entities
– giving the authorities the power to intervene, check licenses, guide, request documents or information and impose sanctions for not complying, where necessary
– allowing for a transitional period for implementation.
HKMA plans to introduce a sandbox arrangement in order to communicate the expectations and hear the practices from market participants. The authority aims to regulate the stablecoin market and be in-line with the international standards on this topic.
The consultation period runs until 29 February 2024.