The proposals include: 

1. introducing new legislation to implement a licensing regime requiring all fiat-referenced stablecoin (FRS) issuers that meet certain conditions to be licensed by the Monetary Authority (MA); 

2.requiring that FRS can be offered only by specified licensed entities, and only FRS licensed by the MA can be offered to retail investors; 

3. prohibiting the advertising of: 

(i) FRS issuance by unlicensed entities; or 

(ii) non-specified licensed entities' offering of FRS; 

4. providing the necessary powers for the authorities to adjust the parameters of in-scope stablecoins and activities having regard to the rapid virtual asset market development; and 

5. providing a transitional arrangement to facilitate the implementation of the regulatory regime.

The HKMA will also introduce a sandbox arrangement for communicating supervisory expectations and guidance on compliance to entities having a "genuine interest in and a reasonable plan on issuing FRS in Hong Kong", as well as obtaining their feedback on the proposed regulatory requirements, with a view to facilitating the subsequent implementation of the regulatory regime and ensuring that it is fit-for-purpose.

Relevant details of the sandbox arrangement will be announced separately. 

Deadline for comments is 29 February 2024.

The updated circular:

• clearly specifies the requirements applicable to intermediaries when they distribute VA-related products; and
• sets out the standards of conduct expected of intermediaries when distributing VA funds authorised by the SFC.

This circular will supersede the joint circulars on intermediaries’ VA-related activities issued on 20 October 2023 and 28 January 2022.

The SFC and the HKMA have reviewed their existing policy provided for intermediaries which wish to engage in virtual asset-related activities. The policy is updated in light of the latest market developments and enquiries from the industry seeking to further expand retail access through intermediaries and to allow investors to directly deposit and withdraw virtual assets to/from intermediaries with appropriate safeguards. F

This updated circular replaces the 28 January 2022 joint circular on intermediaries’ virtual asset-related activities.

In the Consultation Conclusion, the HKMA proposes to bring certain activities relating to stablecoins into the regulatory perimeter, and indicates the expected regulatory scope and key regulatory requirements.

On the whole, the respondents were supportive of regulating stablecoins with a risk-based and agile approach. They also broadly supported the need to take into account the latest market developments and draw reference from the discussion of international regulatory bodies when developing the relevant regulatory regime.

Eddie Yue, Chief Executive of the HKMA, said: “An appropriate regulatory environment will help address financial stability risks possibly posed by stablecoins, and promote the orderly and sustainable development of the industry. We are grateful to the respondents for their valuable feedback to the discussion paper on cryptoassets and stablecoins and their general support for our recommended regulatory principles and direction.  In drawing up the specific regulatory arrangements, the HKMA will consider the feedback received, latest market development and international discussion. We will also engage with stakeholders and market participants. We expect to implement the regulatory arrangements in 2023/24.”

Called Project Sela, the research will study the data security implications of a two-tier retail CBDC architecture where the intermediaries will have no financial exposure, and pioneer methods of making it more resilient to cyber-attacks. The Project is expected to be completed by the end of 2022.