Hong Kong’s stablecoin bill takes effect today, here’s what we know

The Hong Kong stablecoin bill officially takes effect. Financial authorities say they will start granting stablecoin issuer licenses early next year. Here’s everything we know about the bill.

On August 1, the region’s first stablecoin bill in history, the Stablecoin Ordinance, officially comes into effect. The bill establishes a licensing system for issuers of fiat-denominated stablecoins in Hong Kong. It provides would-be stablecoin issuers in the region with a formalized regulatory framework to operate under.

In a recent report by Reuters, the Hong Kong Monetary Authority told the press that the first batch of stablecoin issuer licenses is expected to be granted sometime early next year. So far, several major companies including JD.com, Standard Chartered and others have expressed interest in registering for a stablecoin issuer license following the bill’s commencement.

Despite the growing appetite for stablecoin issuer licenses, Deputy chief executive of HKMA, Darryl Chan, affirmed that the agency will only be granting “a handful” of licenses for the first batch.

In a statement earlier this week, the HKMA reminded industry players to exercise caution when it comes to expressing statements in the public. The agency warned firms against making statements that “could be misinterpreted or create unrealistic expectations.”

So far, the HKMA confirmed that there have been no stablecoin licenses issued to firms. Institutions can begin applying for an issuer license by bringing up the matter to the HKMA before August 31. The HKMA will start accepting applications for the first batch of licenses until the deadline set on September 30.

According to Chan, most institutions are interesting in exploring the possibility of issuing stablecoins pegged to the Hong Kong dollar or the U.S. dollar. Meanwhile, stablecoins backed by the Chinese yuan will still need to specify use cases and the asset reserves prepared for it.

What does a Hong Kong stablecoin issuer license entail?

As previously reported by crypto.news, once the stablecoin bill is fully implemented, companies can register for licenses to issue stablecoins tied to the Hong Kong dollar. Obtaining a license would also allow them to do business in the region, offering stablecoin services to people in Hong Kong

In addition, the new licensing framework would also limit stablecoin advertisements to licensed issuers in an effort to prevent scams. The law would also require stablecoin issuers to provide proof of that the stablecoins are backed by reserves on a 1:1 ratio.

Another crypto.news report stated that the upcoming licensing regime will adopt an invite-only approach to ensure that only qualified industry players will be able to obtain the first batch of licenses to enter the market first.

According to an unnamed source, the HKMA will engage beforehand with potential issuers to identify whether or not they satisfy its regulatory requirements for issuance.

Preventing VPN use in stablecoin users

According to the Stablecoin Ordinance licensing guidelines, the HKMA expects licensed stablecoin issuers to ensure that they do not issue or offer specified stablecoins in jurisdictions where trading of specified stablecoins is prohibited.”

This means that license holders are required to implement safety measures that would mitigate the risks of customers accessing the stablecoins services from prohibited regions by using virtual private networks, or VPNs.