Author: Weilin, PANews
The Hong Kong “Stable Coin Ordinance” will take effect on August 1 (next Friday). The Hong Kong Monetary Authority plans to publish a summary of the “Licensing Regime for Stable Coin Issuers” next week (starting July 28), providing applicants with more detailed guidance on the specific requirements for stable coin issuers regarding anti-money laundering, reserves, information disclosure, and other aspects.
Against the backdrop of a recent surge in the stock market surrounding stablecoin concept stocks, on July 23, the Chief Executive of the Hong Kong Monetary Authority, Eddie Yue, published an article titled “Stablecoins for Sustainable Development,” suggesting to “avoid excessive speculation,” which means preventing excessive conceptualization and bubble trends. At the same time, Chief Executive Yue warned to be vigilant against financial risks.
Currently, there are three groups of testers in the stablecoin sandbox: Yuan Coin Innovation Technology Co., Ltd.; JD Coin Chain Technology (Hong Kong) Co., Ltd.; and a joint venture established by Standard Chartered Bank (Hong Kong), Animoca Brands, and Hong Kong Telecommunications (HKT). Recently, according to senior industry insiders in Hong Kong, it has been revealed that there are already fifty to sixty companies interested in applying for a stablecoin license in Hong Kong, including state-owned enterprises and financial institutions from mainland China, as well as internet giants.
calls for vigilance against speculation, initially only a few stablecoin licenses may be approved, and promoting without a license will be penalized.
The President of the Hong Kong Monetary Authority, Eddie Yue, pointed out in an article that considering the declining intensity of discussions about stablecoins in the market and society over the past month, there is still a need to strengthen the cooling efforts. It is necessary to guard against excessive speculation in the market and public opinion.
“Firstly, there is excessive conceptualization. Once it is required to transition from abstract to practical, and from concepts and theories to application scenarios and specific arrangements, there is a noticeable gap. Taking Hong Kong’s experience as an example, there are already dozens of institutions that have proactively contacted the Monetary Authority team, some of which have clearly expressed their intention to apply for a stablecoin license, while others are in a preliminary exploratory stage. Summarizing the experiences from these contacts, many remain at the conceptual stage, such as proposing to enhance cross-border payment efficiency, support the development of Web3.0, and improve the efficiency of the foreign exchange market, among other visions. Moreover, there is a lack of awareness and capability to manage risks.”
He pointed out that “some institutions can provide application scenarios, but they lack the technology to issue stablecoins and the experience and capability to manage various financial risks. There are multiple models for participating in stablecoins, and for these institutions, a more practical approach seems to be collaborating with other stablecoin issuing institutions to provide application scenarios, rather than pursuing the role of an issuer.”
He also stated that the more concerning issue is the trend of bubble formation. “Recently, with the heated speculation around the concept of stablecoins, the market has shown excessive exuberance. Some listed companies, regardless of whether their main business is related to stablecoins or digital assets, as long as they claim to be expanding into the stablecoin business, it’s like turning stone into gold; their stock prices rise immediately, trading volumes increase significantly, and their company visibility is greatly enhanced. In fact, we have previously made it clear that at the initial stage, at most only a few stablecoin licenses will be issued.”
He added, “Hong Kong regulators have noted that there have been recent scams involving the promotion of digital assets and stablecoins, causing losses to the public. The ‘Stablecoin Regulation’ took effect on August 1, and according to the regulation, it is illegal to promote any unlicensed stablecoin to the public in Hong Kong from the effective date.”
At the same time, Hong Kong Financial Secretary Paul Chan recently stated at the annual report briefing that stablecoins should not become objects of speculation, and the digitization of asset markets is a long-term game. Stablecoins should play a stabilizing role and should not have a short-sighted perspective. He believes that Hong Kong’s development pace is currently faster than other financial centers. Paul Chan also revealed that stablecoins are one of the components of the digitization of Hong Kong’s financial market, allowing for the tokenization of currency in transactions. He believes that the next step will involve the tokenization of different assets, but the development process will take time, and there will not be full tokenization for the time being.
Analysis: It may be arranged through an invitation application system, forming a dual-track regulatory framework.
On July 19, Caixin reported that two sources pointed out that the license for stablecoin issuers will not be obtained through a method where applicants download forms themselves and submit written applications uniformly, but will instead be arranged in a manner similar to an invitation application system. One source explained that, on the operational level, the Hong Kong Monetary Authority, which is responsible for licensing supervision, will communicate in advance with interested stablecoin license applicants to understand whether they meet the basic application qualifications. Only after obtaining basic approval in the preliminary communication will the Monetary Authority issue the application forms.
On July 23, according to a report by Hong Kong Wen Wei Po, Ping An Securities released a stablecoin report indicating that Hong Kong may form a dual-track regulatory framework of “US dollar stablecoins connecting to the international market + Hong Kong dollar stablecoins connecting to the mainland,” which not only consolidates the financial attributes of the Hong Kong dollar but also provides a “testbed” for the internationalization of the Renminbi. Hong Kong’s definition of stablecoins is relatively broad and is not limited to a specific type of fiat stablecoin. With the rapid development of the stablecoin market in Hong Kong, it is expected that the market share of non-US dollar stablecoins will gradually increase, potentially promoting the establishment of a unified international regulatory system in the future.
In addition, the Ping An Securities report mentioned that the scope of regulation in Hong Kong for stablecoin business activities includes not only the issuance of designated stablecoins in Hong Kong but also the issuance of stablecoins pegged (or partially pegged) to the Hong Kong dollar outside of Hong Kong. China’s active layout in the stablecoin market can inject new momentum into the internationalization of the Renminbi and break the monopoly of the US dollar stablecoins.
Banks Compete to Be Custodians
According to the 21st Century Business Herald, some institutions that plan to apply for licenses have already finalized their custodial banks: ZhongAn Bank and Deutsche Bank have been selected by the institutions; Standard Chartered Bank and Tianxing Bank are also potential custodians; HSBC recently launched new services related to virtual assets; in addition, Chinese-funded banks in Hong Kong are also actively expanding, with China Merchants Bank’s subsidiary, China Merchants Yonglong Bank, increasing its promotion of stablecoin custody services.
Banks can leverage their identity as custodians to expand distribution and trading businesses, further enriching their sources of income. For the banking industry in Hong Kong, reserve custody business is an ideal light asset business in a low-interest-rate environment.
Industry insiders estimate that the average custody fee rate is between 0.1% and 0.5%. Taking Circle, known as the “first stock of stablecoins,” as an example, it needs to pay over a hundred million dollars in custody fees to custodians every year. Although the custody business has broad prospects, regulation is tightening. The Hong Kong Financial Services and the Treasury Bureau and the Hong Kong Securities and Futures Commission are conducting a joint public consultation on legislative proposals for a licensing system for digital asset trading and custody service providers, aiming to strengthen the regulation of crypto asset custody businesses and streamline the relevant licenses into several categories such as VATP, VAOTC, and VA Custody.
According to Caixin reports, some stablecoin concept stocks are taking the opportunity to conduct equity financing amid the hype. ZhongAn Online, which started this round of investment craze for stablecoin concept stocks, announced on June 26 that it plans to place 220 million shares at HKD 18.25 per share, completing the placement on July 4, and refinancing HKD 3.92 billion; Lianlian Digital, which is evaluating the feasibility of applying for stablecoin licenses in Hong Kong and Singapore, also signed a share placement agreement on July 12, intending to place 38.4 million shares at HKD 10.25 per share, raising HKD 393.6 million.
Overall, with the official implementation of the Stablecoin Regulation on August 1, Hong Kong’s stablecoin market will usher in a new landscape. As the market matures, stablecoins are expected to play a more important role in cross-border payments and the digital asset market in the future. However, strict regulations in the short term will also ensure that market participants possess sufficient technology and risk management capabilities to effectively prevent financial risks. PANews will closely monitor subsequent developments.
