Hong Kong Implements New Stablecoin Framework with Transition Period

The Hong Kong Monetary Authority (HKMA) has introduced a new regulatory framework for stablecoins, which will come into effect on Friday. To facilitate a smooth transition, the HKMA will implement a six-month special transition period.

Issuers of stablecoins approved under the initial phase will receive temporary licenses allowing them to operate during this transition period, the authorities confirmed Wednesday morning.

Strict Non-Compliance Penalties

The new framework imposes severe consequences for non-compliance. Specifically, stablecoin issuers found not adhering to the rules within three months will have four months to cease operations. The HKMA will mandate wind-down procedures for non-compliant entities.

Worse still, those deemed by the HKMA as unable to meet the new requirements will be required to shut down within a month of receiving the notice.

Initial Licensing Process

Regarding licenses, the HKMA declared it would not specify the exact timing of the first round of approvals. It emphasized, however, that the initial issuance would be limited and confidential. The HKMA did not provide the names of the applicants concerned.

*Hong Kong Monetary Authority building entrance. Source: Wikimedia*

Core Requirements for Stablecoin Issuers

The HKMA’s framework establishes stringent conditions for stablecoin issuance and operation:

Issuers must maintain stablecoin reserves fully backed by high-quality liquid assets
Redemption requests must be processed within one business day
Issuers must maintain operations physically located in Hong Kong
Sufficient financial resources are required
Robust KYC/AML measures including wallet ownership verification and ongoing transaction monitoring

Potential Enforcement Actions

Non-compliance will be subject to investigation by the HKMA. Possible enforcement measures include:

Fines
Public warnings
License suspension or revocation
Referral to law enforcement agencies

The new regulations stem from a broader effort within Hong Kong to address the stablecoin sector, potentially including plans to criminalize unlicensed promotion activities.

Business Interest Pours In

Business entities are preparing to apply for licenses. China-based e-commerce giant JD.com, often called China’s Amazon, registered relevant entities shortly before the framework launch, raising potential plans for a stablecoin launch.

Also registering significant interest is Ant International (part of the Alibaba Group and owner of Alipay). Ant Group is reported to be planning stablecoin license applications for both Hong Kong and Singapore, despite facing regulatory challenges elsewhere.

In another significant development, Standard Chartered Bank Hong Kong, Animoca Brands, and HK Telecommunications have announced a joint venture to launch Hong Kong dollar-backed stablecoins.

Magazine: Hong Kong hoses down stablecoin frenzy, Pokémon on Solana: Asia Express

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