The issuance of stablecoins in Hong Kong is imminent, Compliance issuance and usage guidelines

The Hong Kong government published the "Stablecoin Ordinance" in the Gazette on May 30, marking the imminent issuance of the Hong Kong version of the stablecoin. For those interested in this project, the two most pressing questions may be: first, how to become an issuer of the Hong Kong version of the stablecoin; and second, how users can effectively utilize this new type of stablecoin.

Ways to Become a Stablecoin Issuer in Hong Kong

Currently, the Hong Kong Monetary Authority has selected three institutions as potential issuers, namely JD Coin Chain Technology (Hong Kong), Round Coin Innovation Technology, and a consortium formed by Standard Chartered Bank (Hong Kong), Animoca, and Hong Kong Telecommunications. Starting from July 18, 2024, these institutions will test their stablecoin issuance plans within a specific scope through a "regulatory sandbox". Whether issuing stablecoins in Hong Kong or issuing stablecoins pegged to the Hong Kong dollar overseas, they must obtain permission from the Hong Kong Monetary Authority.

Application Conditions Overview

1. Applicant entity: Hong Kong registered company or recognized overseas legal entity, required to provide the main business address and contact information in Hong Kong.

2. Personnel Requirements: Management must possess appropriate knowledge and experience.

3. Capital Requirements: Minimum paid-up capital of 25 million HKD or equivalent currency, and maintain sufficient high-quality, high-liquidity reserve assets.

4. Asset Custody: Reserve assets are stored in recognized custodial institutions, isolated from other assets.

5. Redemption mechanism: Timely disclosure of the redemption mechanism, restrictions on redemption or additional fees are not allowed.

6. Risk Control System: Equipped with anti-money laundering and counter-terrorism financing Compliance plans, as well as user data security policies.

7. Information Disclosure: Publish white papers, regularly disclose financial and reserve asset status, and notify the Monetary Authority in advance of any significant changes.

8. Audit requirements: Accept independent audits annually.

9. Compliance requirements: including timely payment of license fees, displaying license numbers, maintaining minimum standards, etc.

application procedure

The application process mainly includes two steps:

1. Apply to become a "regulatory sandbox" participant. The monetary authority will assess the applicant's willingness, plans, and the likelihood of meeting regulatory requirements.

2. Apply for a stablecoin issuance license. The application materials must be submitted in accordance with the above conditions.

The monetary authority may unconditionally approve, conditionally approve, or reject the application. The approved license will remain valid unless revoked.

Potential Applications of the Hong Kong Version Stablecoin

Currently, the official details on the specific usage of the Hong Kong version of the stablecoin have not been introduced. However, from the introduction of a participating testing company, we can learn about some possible application scenarios:

1. Cross-border payments: Achieve second-level transactions, significantly reduce intermediary costs, and provide round-the-clock service.

2. Investment Trading: Providing services in cooperation with compliant exchanges. Notably, the Hong Kong Securities and Futures Commission has issued 10 virtual asset exchange licenses, and another 8 applicants are waiting for approval.

3. Retail payments: may interface and test with certain e-commerce platforms' Hong Kong and Macau sites.

Reminder on the Differences in Regulatory Policies Between Mainland and Hong Kong

Hong Kong is making rapid progress in the legislation and testing of stablecoins, with related legal protections gradually improving. For example, in some cases involving virtual currencies, Hong Kong courts have already made rulings to protect investors' rights.

However, the regulatory attitude towards virtual currencies in mainland China remains strict. In mainland China, virtual currencies are not considered as money, and related disputes are usually not accepted by the courts. However, for criminal cases involving virtual currencies being stolen or scammed, the public security department generally treats them as an asset.

Therefore, investors and users need to fully understand the policy differences in different regions and act with caution when participating in related activities.