Scope of the Bill

The Bill regulates “Specified Stablecoins” which is defined as cryptographically secured digital representations of value which, among other things, purport to maintain a stable value with reference wholly to one or more fiat currencies or other HKMA-specified units of account or stores of economic value.

It should be noted that “Specified Stablecoins” excludes certain financial products and instruments that are already regulated, such as deposits, securities, futures contracts, float stored in stored value facilities (“SVF”), SVF deposits and digital assets issued by governments or central banks. These will not fall within the ambit of the Bill.

Licensing Regime for Issuance of Specified Stablecoins

Under the Bill, a person is required to obtain a licence in order to carry out “regulated stablecoin activity”, which includes:

• Issuing, or holding oneself out as issuing, a Specified Stablecoin in Hong Kong in the course of business;
• Issuing, or holding oneself out as issuing, a Specified Stablecoin outside Hong Kong that purports to maintain a stable value with reference (whether wholly of partly) to the Hong Kong dollar;
• Actively marketing one’s issuance of Specified Stablecoins to the Hong Kong public; and
• Any other activity specified by the HKMA after consulting the Financial Secretary pursuant to section 5(4) of the Bill.

To qualify for licensing, a licensee must meet certain conditions (note that there are certain exemptions for authorized institutions (“AIs”)), such as:

• Corporate status: A licensee must be a company or an authorized institution incorporated outside Hong Kong.
• Financial resources: A licensee must have adequate financial resources and liquid assets. Among other things, a licensee must maintain a minimum paid-up share capital of HKD 25 million or an equivalent amount in another currency that is freely convertible into Hong Kong dollars or is otherwise approved by the HKMA.
• Reserve asset requirements: The primary requirement is to maintain a pool of reserve assets for each type of Specified Stablecoins issued by the licensee, the market value of which must at all times be at least equal to the par value of the outstanding Specified Stablecoins of the type in circulation.
• Redemption: A licensee must provide, to all holders of Specified Stablecoins issued by it, a right to redeem the Specified Stablecoins. Such right must not be attached with conditions restricting the redemption of a Specified Stablecoin that is unduly burdensome. Further, a licensee may not charge an unreasonable fee in connection with such redemption.
• Localisation: An issuer of Specified Stablecoins must be a Hong Kong company and its senior management must be based in Hong Kong.

Offering Regime for Specified Stablecoins

In addition to the issuance of Specified Stablecoins, the Bill also regulates the offering of Specified Stablecoins to another person. Under the Bill, only certain regulated entities (such as AIs and corporations licensed or registered with the Securities and Futures Commission) may offer Specified Stablecoins or actively market such offering to the Hong Kong public.

Furthermore, the Bill makes a distinction between Specified Stablecoins issued by HKMA-licensed issuers and those that are not. Only the former could be offered to retail investors. The latter may only be offered to exempted persons designated by either the Financial Secretary or the HKMA.

Moving forward

In December 2024, the Bill had its first reading in the Legislative Council of Hong Kong and is anticipated to become law in the following months. The Bill, once operational, will further cement Hong Kong’s position as a leading hub for digital finance.

Authored by Tommy Liu, Katherine Tsang.