From "Sandbox" to "License": Hong Kong takes action on stablecoin regulation

On May 22, Eastern Time, the price of Bitcoin hit a new record high.

At the same time, two things happened recently: one is that the Legislative Council of Hong Kong, China passed the "Stablecoin Bill", which is expected to take effect within the year; the other is that in the United States on the other side of the earth, the GENIUS Act aimed at regulating stablecoins is also being vigorously promoted.

It is reported that a stablecoin is a virtual asset designed to maintain a relatively stable value with certain assets (usually currencies). The value of a stablecoin is anchored in various legal currencies, such as the US dollar and the euro. Common stablecoins include USDT (Tether), USDC, etc. Previously, the Hong Kong Monetary Authority has made public the first batch of stablecoin issuers' sandbox list, including JD.com Group's JD Coin Chain Technology (Hong Kong), Yuanbi Innovation Technology, while Standard Chartered Bank (Hong Kong), Animoca Brands Limited, and Hong Kong Telecom (HKT) chose to apply jointly.

The regulatory framework for stablecoins is gradually becoming clear

According to the Hong Kong Special Administrative Region Government, on May 21, the Hong Kong Legislative Council passed the Stablecoin Bill on the same day, aiming to establish a licensing system for issuers of fiat stablecoins in Hong Kong.

After the implementation of the Ordinance, anyone who issues fiat stablecoins in Hong Kong during the course of business, or issues fiat stablecoins outside Hong Kong that claim to be anchored to the value of the Hong Kong dollar, must apply for a license from the Monetary Authority. The Ordinance only allows designated licensed institutions to sell fiat stablecoins in Hong Kong, and only fiat stablecoins issued by licensed issuers can be sold to retail investors. The news said that the Stablecoin Ordinance is expected to take effect this year, and the licensing system has a transitional period arrangement so that the industry can apply for licenses and make appropriate business arrangements in accordance with the requirements of the Ordinance.

Qiao Zheyuan, partner of Jun He Law Firm's Hong Kong office, was talking to the reporter of the "Daily Economic News". If the ordinance comes into effect, providers of international popular stablecoins such as USDT may have to apply for relevant local licenses in Hong Kong if they want to sell stablecoins to ordinary investors in Hong Kong.

According to the reporter, stablecoins ensure the relative stability of their value by being linked to legal tender. For a long time, stablecoins have been outside the government's regulatory system. With the continuous expansion of the application of stablecoins, potential risks such as redemption runs have gradually attracted people's attention, and the urgency of stablecoin regulation is increasing.

Many places are tending to improve the legislation and supervision of stablecoins

In fact, to date, in addition to Hong Kong, China, many countries or regions including the United States, the European Union, Singapore, Dubai, etc. have begun or completed the legislative improvement work around the stablecoin framework.

Take the European Union as an example, MiCA (Market Regulation on Crypto Assets) was fully implemented on December 30, 2024, providing a comprehensive regulatory framework for all crypto assets, including stablecoins. It is reported that in order to prevent systemic financial risks, the bill requires issuers to hold sufficient asset reserves to support the stability of stablecoin prices.

In the United States, according to ABC News on May 21, the U.S. Senate passed the GENIUS Act on Monday with a vote of 66:22. Supporters praised the bill as a means of protecting consumers and setting industry standards, which could make such cryptocurrencies a mainstream tool for digital payments and other financial instruments.

"We are seeing a clear global trend: stablecoins are moving from the 'grey area' to a clearer and more systematic regulatory framework."

Bai Qin, head of the Hong Kong office of Mankiw LLP, told reporters that regulatory measures in various countries or regions show that major markets are incorporating stablecoins into the logic of traditional financial regulation, and the focus is gradually shifting from "whether to regulate" to "how to regulate", especially in terms of anti-money laundering, transparency of sources of funds, and on-chain traceability.

Industry: Three major regulatory trends are emerging

The application activity of stablecoins has increased, which has attracted the attention of regulators in various places. Many interviewees told the reporter of the "Daily Economic News" that government regulators are seeking a balance between market development needs and risk prevention and control.

Taking the Stablecoin Bill launched in Hong Kong as an example, Lawyer Bai Zhen said frankly: "On the one hand, in the past few years, there has always been uncertainty in the market for stablecoins in the absence of a regulatory framework. By establishing a clear licensing system, the government hopes to provide the industry with a clear rule basis, thereby reducing the market's trial and error costs and encouraging compliance innovation. On the other hand, stablecoins have cross-border attributes and other characteristics, which also bring challenges in financial security, capital flows and anti-money laundering. Through legislation, Hong Kong is expected to more effectively control these risks.

Xiao Sa, senior partner of Beijing Dacheng Law Firm, also told reporters that the most direct reason for Hong Kong to promote the implementation of the ordinance is to improve the regulatory framework for virtual assets in order to further find a balance between innovation and risk in the field of virtual assets.

Xiao Sa summarized to reporters that from the perspective of the regulatory framework for stablecoins in some countries and regions, three major trends are emerging:

First, the requirements for license access and localization are universal. Major economies generally require stablecoin issuers to operate with a license and set up local entities. For example, Hong Kong requires licensed issuers to register in Hong Kong and establish management, while the United States intends to limit the issuance of stablecoins to banks or trust companies. Such measures are aimed at strengthening local regulatory capabilities and preventing cross-border regulatory arbitrage.

Second, reserve management is approaching traditional financial standards. Countries emphasize the liquidity of reserve assets (such as cash, treasury bonds) and independent custody, and introduce regular audits. Hong Kong requires that the value of reserve assets should not be less than the face value of the circulating stablecoins. The EU MiCA rules even require algorithmic stablecoins to hold 300% excess reserves, reflecting strict control of credit risk. Its supervision is approaching traditional financial standards.

Finally, the functional positioning is concentrated on payment tools. Regulators tend to define stablecoins as "payment tools" rather than investment products, limiting their financial intermediary functions. For example, Hong Kong prohibits licensed issuers from engaging in lending business to avoid credit creation risks, which is consistent with the regulatory logic of payment institutions.