Hong Kong Monetary Authority sets bar high for stablecoin issuers

As Hong Kong's Stablecoins Ordinance will take effect on Friday, the Hong Kong Monetary Authority issued detailed regulatory guidelines for stablecoin issuers on Tuesday, emphasizing that it will adopt a cautious approach during the early stages of the virtual currency sector's development, and consider easing requirements over time based on market experience.

To streamline the licensing process, the HKMA said firms interested in issuing stablecoins in the city are encouraged to contact the regulator by Aug 31 for initial guidance. Those believing themselves well-prepared and aiming for an early start should submit applications no later than Sept 30.

Darryl Chan, deputy chief executive of the HKMA, said there's no specific target for the number of licenses to be issued in the first batch, but the regulatory bar is high.

Applicants must meet multiple requirements, including holding fully liquid and high-quality reserves, maintaining a physical presence in Hong Kong, and processing customer redemption requests within one business day.

Given this cautious stance, Chan said he expects the first stablecoin license not to be issued until early next year.

The priority is ensuring the stablecoin industry develops in a healthy and sustainable way, instead of hastily expecting explosive growth, he added.

According to the monetary authority, licenses will not have a fixed term, but if issuers fail to perform well, authorities have various measures to employ, including revoking licenses in the most severe cases.

Despite the high standards, Daryl Ho, executive director of monetary management at HKMA, said regulators will remain in communication with companies that fail to secure a license in the initial stage, but wish to continue their application process, leaving the door open for future licensing opportunities.

"Regulated stablecoin business, in its infancy, should start with stricter regulations to ensure sound operations. With practical experience gained, it will be possible to be flexible in certain areas," according to the HKMA.

Moreover, to facilitate a smooth transition, stablecoin issuers operating in Hong Kong as of August will be granted a six-month grace period.

They are required to submit their license applications within three months of the ordinance's implementation and demonstrate their ability to comply with the new regulatory requirements.

During this period, eligible issuers may receive temporary licenses, allowing them to continue business in Hong Kong.

But those unable to meet the requirements within the timeframe must wind down their operations in the city by the end of November.