The second reading of the Hong Kong Stablecoin Bill, regulatory details are made public for the first time

Author: SukiSu Source: X, @suwanyu7777

Today, the Hong Kong Stablecoin Bill (hereinafter referred to as the Bill) is holding its second reading! As a heavyweight Bill, whether it is passed or not will have a significant impact on investors like you and me!

What is a stablecoin? What are the key points of the Bill? What does the second reading mean for Hong Kong and Hong Kong's legislative process after the Bill is passed? What impact will the passage of the Bill have?

1. What is a stablecoin?

The core regulatory object of the Bill is "Specified Stablecoins".

"Specified Stablecoins" are defined as stablecoins that maintain stable value by reference to one or more legal currencies, or other units of calculation or forms of economic value storage specified by the HKMA. This means that the focus of regulation will be mainly on stablecoins (FRS) pegged to fiat currencies.

Although stablecoins theoretically include "algorithmic stablecoins", the HKMA has stated that given that such stablecoins usually lack sufficient reserve asset support, it will be extremely difficult for their issuers to meet the licensing criteria under the Draft Ordinance, especially the requirements for reserve assets.

However, the HKMA stated that it reserves the power to adjust the definition and scope of "specified stablecoins" in the context of market development and technological evolution, which means that other types of stablecoins may also be included in regulation in the future.

So what exactly does this "Stablecoin Draft Ordinance" say?

2. What are the core points of the "Draft"?

a. Definition and scope of "specified stablecoins"

The HKMA has clarified the definition and regulatory scope of stablecoins, laying a legal foundation for future law enforcement supervision. Being regulated means being accepted, which means more exposure and policy activities.

b. Establishing a licensing system for stablecoin issuers and related activities

This system clarifies the activities that require a license, the eligibility criteria for license applicants, and the regulatory requirements for licensed issuers. Appropriate entry barriers are very useful for active industries and can also achieve risk supervision.

c. Regulatory requirements for licensed issuers

Licensed issuers must continue to comply with a series of strict regulatory requirements to ensure the robustness and compliance of their business operations. This part includes financial assurance, internal risk control system, division of responsibilities, disclosure obligations, etc., which is a milestone progress for standardization activities.

Now that we understand what the "Draft" says, how is it progressing?

3. What does the second reading mean, and where is the "Draft" now?

Hong Kong's legislative process can be roughly divided into the following steps:

a. Proposal and preparation of the bill (completed)

This part includes policy establishment and draft preparation, Executive Council deliberation and publication in the "Gazetted" for public notice.

b. Legislative Council deliberation process (three readings process)

First reading: At the Legislative Council meeting, the Legislative Council Secretary reads out the abbreviation of the bill, and there will be no debate (more like a process to be followed)

Second reading: The member responsible for the bill will move the second reading of the bill at the Legislative Council meeting and speak to explain the purpose, principles and main contents of the bill. After the Bill Committee completes its deliberation work, it will submit a report to the Legislative Council. After that, the Legislative Council will debate the second reading. After the debate, all members vote on the motion to "read the bill for the second time". If the motion is rejected, the legislative process of the bill will terminate. (The bill is here now, and it is also the most important part!)

If the second reading motion is passed, the Legislative Council will enter the stage of deliberation by the full committee. If it is passed, it will enter the third reading!

Third reading: The Legislative Council votes on the Third Reading motion. If the motion is passed, the bill will be formally passed by the Legislative Council.

c. Signature and implementation by the Chief Executive

At this point, the entire legislative process has been completed!

After understanding the legislative process, can we imagine the scene after the passage of the "Draft"?

4. The impact of the passage of the "Draft"

The legislative process of the "Draft" can be traced back to the "Discussion Paper on Crypto Assets and Stablecoins" issued by the HKMA in January 2022. In the following years, the HKMA has successively launched a number of documents to explore the regulation of crypto assets.

It can be seen that the Hong Kong Monetary Authority has been studying crypto assets for some time. Faced with the crypto craze sweeping the world, Hong Kong, as a financial center, is unwilling to lag behind. The passage of the "Draft" means that Hong Kong's financial status has been further consolidated and is full of possibilities in the future!

Hong Kong's legislation this time shows a proactive regulatory attitude. This forward-looking approach can help build market confidence and attract compliant investors, which is much better than waiting for a crisis to occur before taking remedial measures. This licensing access system and regulatory requirements are very comprehensive, and the Hong Kong authorities have obviously made the greatest attempt in risk control.

For institutions, although Hong Kong's regulatory bill will increase compliance burdens and costs, it will also help them complete integration and enhance competitiveness through market access thresholds.

For ordinary investors like us, this draft can improve market transparency and effectively reduce fraud. We can expect that this is just the beginning. In the future, more and more cryptocurrency activities will be carried out in the sun. Protecting ordinary investors, who are the foundation of this circle, is definitely beneficial to long-term development!

Crypto assets are being seen and taken seriously by the world step by step. Now is just the beginning of the story~