Hong Kong sets HK$25 million minimum capital rule for fiat-backed stablecoin issuers

Hong Kong has set a minimum capital requirement of HK$25 million for companies seeking to issue fiat-backed stablecoins in the city. 

Regulators require issuers to provide a clear and enforceable redemption mechanism that allows holders to exchange stablecoins for fiat currency at a 1:1 ratio within a short timeframe.

The requirement is part of the city’s new stablecoin regulatory regime, which came into legal force this year and establishes a licensing framework overseen by the Hong Kong Monetary Authority (HKMA).

Hong Kong’s regulatory architecture takes shape

According to statements by Lui Chi-hung, a member of Hong Kong’s Stablecoin Review Tribunal and the government’s Web3 Development Working Group, the city has now established “a clear institutional framework” for supervising virtual assets, with emphasis on the issuance and backing of stablecoins.

Regulators in the Chinese special administrative region mandate applicants to have at least HK$25 million in capital to ensure that issuers have the financial capacity to absorb market shocks and meet redemption obligations even during periods of stress, with a particular condition that they are only fiat-referenced stablecoins, backed fully by traditional currency and liquid assets.

Chi-hung said that the fiat funds raised by an issuer must be invested in highly liquid, low-risk assets to ensure that there’s adequate and reliable support for the value of the stablecoin.

Chi-hung added that “stablecoin issuers also need to provide compliance documentation to regulators through independent audits.” They are expected to undergo independent audits by professional firms like Deloitte, which are expected to issue audit reports as required by regulations and also verify if the assets held by the issuer are indeed low-risk.

Part of the auditor’s task is to “ensure that asset allocation is consistent with public disclosures, thereby strengthening market confidence.”

Global regulatory landscape continues to expand

Chi-hung believes Hong Kong’s robust regulatory framework protects investor safety and also lays a solid foundation for stablecoin and Web3 industry development. The framework is expected to attract international institutions to issue or use stablecoins in Hong Kong, promoting the continued development of the local virtual asset ecosystem.

Hong Kong is on a comparative footing with the global regulatory landscape, such as the European Union’s Markets in Crypto-Assets regulation, which came into effect on June 30, 2024.

Around the same time, the Hong Kong stablecoin regime came into force, the United States passed the GENIUS Act this year, bringing some form of regulatory oversight into the crypto and stablecoin space.

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