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

Hong Kong regulators are proposing tougher legislation that requires stablecoin issuers to obtain a licence from the city’s de facto central bank before serving retail customers, as the Asian financial hub continues to develop its rules for the virtual-asset industry.

Issuers of stablecoins that aim to “maintain a stable value with reference to one or more fiat currencies” will need to be licensed by the Hong Kong Monetary Authority (HKMA) if they want to sell to retail investors in Hong Kong, according to a new consultation paper the HKMA launched on Wednesday with the Financial Services and the Treasury Bureau (FSTB).

Companies without a licence will not be able to issue such fiat-referenced stablecoins (FRS) in Hong Kong, will not be able to issue a stablecoin pegged to the value of the Hong Kong dollar or actively market their FRS to the Hong Kong public, the consultation paper states.

The legislative proposal comes as Hong Kong steps up efforts to become a virtual asset and Web3 hub, while implementing guardrails for the volatile sector, which has seen several cryptocurrency firm collapses over the past two years.

“The TerraUSD collapse in 2022 highlighted the urgency to have such a regime in place sooner rather than later,” the regulators say in the paper, referring to the algorithmic stablecoin pegged to the US dollar that collapsed in May last year, setting off a global cryptocurrency rout.

Stablecoins that derive their value from an algorithm, such as TerraUSD, will fall under Hong Kong’s new regime, but “it will be highly unlikely that such an issuer” will meet the HKMA’s proposed criteria and be able to obtain a licence, according to the consultation paper.