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Financial regulators in Hong Kong are moving towards the presentation of stablecoin legislation following the completion of a consultation process. In February of this year, that consultation process, which received 108 submissions from professional bodies and industry stakeholders, was completed. It was run jointly by The Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA), culminating in the publication of the results of the process.Photo by Pat Whelen on UnsplashLegislative proposal publishedOff the back of that prior body of work, the regulators have now published a legislative proposal, incorporating responses to issues that were brought to light via the consultation process. The regulators concluded that going forward, stablecoin regulation should be considered primarily in terms of those stablecoin assets which operate on a ledger which runs on a decentralized basis. Additionally, no individual or unilateral entity should have the ability to tamper with or control those assets or the network upon which they exist. On this basis, the regulators intend to submit a bill relative to fiat-referenced stablecoins for consideration to the Legislative Council at a later stage in 2024. Before submitting any legislative proposal, the regulators plan to once again consult with stakeholders prior to finalizing any such proposal. As part of what they have set out thus far, regulators are looking to include a requirement for any stablecoin issuer to obtain a license in Hong Kong.  Reserve asset requirementsThey remain open to the idea that reserve assets backing an issued stablecoin could be held in an overseas jurisdiction. However, if the issuer is an overseas entity, it will be required to establish a local corporate entity in Hong Kong, with relevant management personal based within the Chinese autonomous territory. In light of feedback received during the consultation process, the regulator is looking at reducing the attestation frequency that each stablecoin issuer will be required to provide via an independent auditor in order to verify that the stablecoins issued are backed by the requisite amount of liquid assets.  Such reserve assets must be segregated from the working capital of the stablecoin issuer’s business, with the HKMA expressing a preference for a trust-like structure following input via the consultation process. Furthermore, reserve assets must be deemed to be both high quality and highly liquid, which would include cash, bank deposits and government issued securities where counterparty risk is minimized. On the basis that the Hong Kong dollar is pegged to the U.S. dollar, the regulator is content to allow issuers to use USD-denominated reserve assets if they prefer to do so. The legislative proposal also stipulates the need for issuers to have a minimum share capital of HK$25 million or 1% of the value of stablecoin in circulation.  The HKMA foresees crypto exchanges, securities firms and regulated banks having the ability to offer stablecoins to customers, so such offerings won’t be confined to dedicated stablecoin issuers.Back in March the HKMA introduced a stablecoin sandbox with a view towards learning what works best from a regulatory standpoint. It’s understood that a list of participants will be announced in the near future. Participating entities will be able to issue stablecoins in Hong Kong within that controlled sandbox environment, prior to full scale implementation once stablecoin regulation has been fully legislated for.

Hong Kong regulator, the Securities and Futures Commission (SFC), which oversees Hong Kong’s securities and futures markets, is understood to be planning to give the go-ahead for crypto derivative products to be offered to professional investors within the Chinese autonomous territory. Chinese English-language newspaper China Daily reported on June 4 that the proposed move forms part of Hong Kong’s efforts to expand its digital assets-related product offering in order to further bolster its position as a leading regional hub for the sector. Christopher Hui, Hong Kong’s Secretary for Financial Services and the Treasury, told the publication that the SFC will open up crypto derivatives trading to professional investors in the city “in an orderly, transparent and secure manner.”Photo by Florian Wehde on UnsplashBoosting liquidity to spot marketsChina Daily claimed that the SFC outlined that the crypto derivatives product will enable efficient risk transfers, while boosting the liquidity of the underlying spot markets. TokenInsight data suggests that the global crypto derivatives market has reached $21 trillion in trading volume over the course of Q1 2025. By comparison, derivatives trading dwarfs spot trading, given that spot trading weighed in at just $4.6 trillion over the same period. Liquidity in the underlying spot markets can be enhanced by a broadening of crypto derivatives product offerings in instances where digital assets are traded for immediate payment and delivery. Their availability will also appeal to professional traders and investors who need access to derivatives as part of their overall strategies in order to hedge positions and add leverage when required. Industry interestReaction to news of the Hong Kong SFC’s plans has largely been positive. Back in February, Jean-David Péquignot, chief commercial officer (CCO) with the world’s largest crypto derivatives exchange Deribit, told the South China Morning Post that opening up availability of crypto derivatives products was the one item missing from Hong Kong’s push towards development as a hub for the digital assets sector. At the time, he stated:“Hong Kong is this central financial hub in the world and a big one in Asia. If regulators can solve the derivatives piece, it is a place where we love to be.” On that basis, Péquignot suggested that Deribit, headquartered in Dubai, would be interested in establishing itself in Hong Kong, suggesting that “Asia is a big market for derivatives.” He added:“We want to be in Asia. We just need to find the right place and time to engage with regulators and get a regulatory framework to work with.” The company’s acquisition by Coinbase was announced last month for $2.9 billion. Regulatory approach questionedWhile many see the move towards the approval of crypto derivatives in Hong Kong as bullish, not everyone perceives the regulator’s approach in this instance to be positive. Pseudonymous crypto trader “Pickle Cat” outlined on X that “opening crypto derivatives only to 'professional investors' isn’t progress.”  The trader points out that good regulation would concentrate on controlling issuance and not circulation. Suggesting that the SFC has missed the point in its approach, the trader claims that the regulator would serve the crypto derivatives market best by verifying what backs such products while not restricting how such tokens move. 

Korea’s financial regulator establishes dedicated units for crypto oversightThe Financial Supervisory Service (FSS) of South Korea revealed in a Wednesday (local time) press release that it is introducing new units specifically focused on virtual asset matters. This move is in anticipation of the upcoming implementation of the Virtual Asset User Protection Act scheduled for next July. The establishment of these dedicated organizations is a strategic step towards bolstering the integrity of the crypto market, with the goal of enhancing consumer protection.Photo by Ethan Brooke on UnsplashSupervision and investigation bureausThe newly established units will be known as the Virtual Asset Supervision Bureau and the Virtual Asset Investigation Bureau. These units are being created in response to the burgeoning crypto market.The Supervision Bureau will be responsible for extensive oversight of cryptocurrencies. Its roles will include supervising and inspecting virtual asset service providers (VASPs), monitoring market activities and enhancing policy and regulations in the sector. Additionally, the bureau is tasked with ensuring the effective implementation of these regulations and contributing to the promotion of market stability.The Investigation Bureau, the other key component of the new structure, will concentrate on identifying and addressing market abuse activities in the cryptocurrency sector, specifically targeting unfair trading practices.Until now, the Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC) has played a leading role in overseeing the crypto sector, primarily due to its responsibility in evaluating applications from VASPs.FSS’s greater role in crypto oversightThe FSS, on the other hand, has maintained a digital asset research team, which has been responsible for supporting virtual asset legislation, along with conducting market analysis and monitoring. However, the latest move is set to the FSS’s role in regulation and oversight within the crypto market.The Supervision Bureau will be under the leadership of Lee Hyun-duk, who currently serves as Head of Financial Investment Examination Department 2. Meanwhile, Moon Jung-ho, the present leader of Audit Oversight Department 1, will take charge of the Inspection Bureau. The process of appointing team members to these bureaus is scheduled to take place in early January.