Warns HKMA: Limitations in issuing stablecoin licenses, with strict Anti-Money Laundering measures imposed.
Hong Kong Unveils Stablecoin License Application Process Next Week
Starting next week, companies interested in obtaining a stablecoin license in Hong Kong can officially apply under the new regulatory regime governed by the Hong Kong Monetary Authority (HKMA). The requirements are stringent, with applicants needing to comply with financial stability measures, anti-money laundering (AML), and counter-financing of terrorism (CFT) guidelines.
The new regulations, which come into force on August 1, 2022, incorporate a comprehensive Travel Rule framework with zero thresholds and mandatory technology standards. This move is aimed at ensuring the stability and security of the burgeoning stablecoin industry.
Eddie Yue, CEO of the HKMA, has emphasized the need to "further rein in the euphoria" in the market, acknowledging the spikes in stock prices and crypto tokens caused by the flurry of firms announcing stablecoin plans. However, he also noted that much of the discussion around stablecoins is idealistic, especially regarding disrupting mainstream payments.
The number of successful new applicants could still be smaller than expected due to the technical and risk management requirements. To address this, there might be a focus on partnerships between companies with viable use cases and those with the necessary expertise and experience during the stablecoin license application process.
Several companies are yet to present practical use cases for stablecoins, and some of those with viable use cases lack the technical expertise and experience in risk management. Mr. Yue believes that these companies should partner with others with relevant experience to navigate the complex regulatory landscape.
The HKMA only plans to issue a handful of stablecoin licenses in the first instance. This cautious approach is likely due to the need to ensure the stability of the industry and the effective implementation of the new regulations.
The implementation of strong AML rules next week may further impact the scaling of stablecoin businesses. This is because the new legislation imposes hefty fines on unlicensed entities, which could deter some companies from entering the market.
The Hong Kong Fintech Week, scheduled for later this year, is likely to provide more insights into the stablecoin landscape. This event could offer a platform for companies to present their use cases and demonstrate their compliance with the new regulations.
It's important to note that a flurry of firms have announced stablecoin plans, but many of these proposals are conceptual and lack concrete plans. A few dozen organizations have reached out to the HKMA to discuss stablecoins, but the majority of these discussions have yet to result in practical applications.
In a recent development, a consortium that includes Standard Chartered, JD Coinlink (a subsidiary of China's giant ecommerce company), and RD InnoTech could receive priority treatment in the Stablecoin Sandbox. This consortium's application is expected to be closely watched, as it could set a precedent for future stablecoin projects in Hong Kong.
[1] South China Morning Post: "Hong Kong to launch stablecoin licensing regime next week" [2] Reuters: "Hong Kong to issue stablecoin licenses from August 1" [3] CoinDesk: "Hong Kong Monetary Authority unveils stablecoin license application process" [4] Hong Kong Monetary Authority: "Stablecoins Ordinance (Cap. 656)" [5] Hong Kong Monetary Authority: "Stablecoins Regulatory Framework"
- The Hong Kong Monetary Authority (HKMA) will launch the stablecoin license application process next week, as stated in the CoinDesk article.
- Due to stringent financial stability measures, anti-money laundering (AML), and counter-financing of terrorism (CFT) guidelines, the number of successful new applicants could be smaller than expected.
- The Hong Kong Fintech Week, scheduled for later this year, may offer more insights into practical stablecoin use cases and regulatory compliance.
