The Hong Kong Monetary Authority (HKMA) the Financial Services and the Treasury Bureau have introduced a legislative proposal to establish a regulatory framework for stablecoin issuers. 

This initiative responds to the evolving landscape of virtual assets and emphasizes stability, transparency, and responsible development within the virtual asset ecosystem. The proposal, open for public consultation until Feb. 29, aims to ensure robust criteria for licensing stablecoin issuers.

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Key Measures in the Legislative Proposal

The proposed measures include criteria for obtaining HKMA licenses, such as securing full reserves for circulating stablecoins equal to or greater than their par value. Segregation and safekeeping of reserve assets, along with mandatory disclosure and regular reporting, form essential components of the regulatory framework. 

Notably, algorithmic stablecoins would not qualify for licensing. Stablecoin issuers seeking a license must also establish a registered office in Hong Kong, complete with a chief executive, senior management team, and key personnel.

With the implementation of this licensing regime for stablecoin issuers, Hong Kong aims to enhance risk management in the development of stablecoins. Christopher Hui, the Secretary for Financial Services and the Treasury highlighted the significance of this regulatory step, stating, 

"With the implementation of the licensing regime for VA trading platforms from June this year, the legislative proposal to regulate FRS is another important measure facilitating Web3 ecosystem development in Hong Kong."

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Hong Kong's Crypto-Friendly Position

Hong Kong, aspiring to be a regional crypto hub, has been proactive in positioning itself favorably within the crypto space. In June, it introduced a licensing regime for crypto service providers, recognizing retail crypto trading as a regulated activity. 

Furthermore, the HKMA and Securities and Futures Commission (SFC) jointly stated their readiness to accept applications for the authorization of various funds, including Virtual Asset Spot exchange-traded funds (VA Spot ETFs) and existing crypto futures ETFs.