Proposed stablecoin legislation advances to Hong Kong’s Legislative Council
Legislation geared towards regulating stablecoins has reached the Legislative Council stage in the Chinese autonomous territory of Hong Kong.
The bill, which extends to a 285 page document, has been formulated following “extensive consultations” with industry stakeholders, according to Eddie Yue, CEO of the Hong Kong Monetary Authority (HKMA).
This latest development moves the Chinese autonomous territory one step closer to having a comprehensive regulatory framework in place for stablecoins. The bill’s arrival at the Legislative Council follows its publication on Dec. 6 in Hong Kong’s Gazette. Subsequently, on Dec. 18, it made its preliminary entry at the Legislative Council by way of a first reading.
The legislation will deem a digital asset a stablecoin if it is operated on a distributed ledger, is expressed as a unit of account and maintains an equivalent value relative to another asset that it references. Digital assets issued by governments or central banks will be excluded from that stablecoin definition.
Three readings required
Before the bill can be enacted into law, it is required to go through a series of three readings. Allied to that process is a requirement for a series of debates, with the bill coming under the scrutiny of lawmakers. Depending upon the issues raised, this process may also require the introduction of amendments to the proposed legislation.
If passed following the third reading, it will then be forwarded to the autonomous territory’s chief executive, John Lee Ka-chiu, to be signed into law.
Once signed into law, stablecoin issuers in Hong Kong will then be required to obtain a license from the city's central bank, HKMA. That licensing process would implicate the HKMA scrutinizing the applicant with an emphasis on the evaluation of the issuer, its resources, the use of reserve assets and the means through which the stablecoin’s value will be rendered stable.
Stablecoin optimism
This latest milestone has provoked a cause for optimism among some commentators. Sean Lee, co-founder of Hong Kong-based Web3 firm IDA, told the South China Morning Post (SCMP) that “the applications of stablecoin will be numerous.” Lee outlined that stablecoins can be used for payments, settlements, payrolls and financing, while adding that “new products will spring up, and transactions will be faster, instant, 24/7 – and at a lower cost.”
Dominic Maffei, Standard Chartered’s head of digital asset and fintech for Hong Kong, is similarly encouraged. Maffei stated:
“As of today, we think that stablecoins are the best available tool for connecting traditional finance and Web3 markets and have proven use cases and business models to support that belief.”
Once enacted, the bill is likely to have a significant impact on the stablecoin market in Hong Kong. In Europe, the application of the Markets in Crypto Assets (MiCA) regulation is having such an impact. It has led to a growth in Euro-denominated stablecoin trading while leading U.S. dollar stablecoin Tether (USDT) is being delisted by many platforms due to its non-compliance with these regulations.
