Author: Weilin, PANews
The "Stablecoin Regulation" in Hong Kong will take effect on August 1 (next Friday). The Hong Kong Monetary Authority plans to release a summary of the "Licensing System for Stablecoin Issuers" next week (starting July 28), providing applicants with more detailed guidance on specific requirements for stablecoin issuers regarding anti-money laundering, reserves, information disclosure, and more.
In the context of a recent surge in the stock market surrounding stablecoin concept stocks, on July 23, the President of the Hong Kong Monetary Authority, Eddie Yue, published an article titled "Stablecoins for Sustainable Development," emphasizing the need to "avoid excessive speculation," which means preventing over-conceptualization and bubble trends. At the same time, President Yue warned 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 HKT. Recently, according to senior industry insiders in Hong Kong, it has been revealed that around fifty to sixty companies are 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.
Call for Caution Against Speculation, Initial Approval May Only Be for a Few Stablecoin Licenses, Criminalizing Unlicensed Promotion
In his article, President Eddie Yue pointed out that given the heated discussions about stablecoins in the market and society over the past month, the cooling efforts still need to be strengthened. It is necessary to guard against excessive speculation in the market and public opinion.
"Firstly, there is over-conceptualization. Once it transitions from concept to reality, from theoretical levels to practical applications, there is a significant gap. For example, in Hong Kong's experience, dozens of institutions have proactively contacted the Monetary Authority team, some clearly expressing their intention to apply for a stablecoin license, while others are in preliminary exploratory stages. Summarizing these contacts, many remain at the conceptual stage, proposing visions such as enhancing cross-border payment efficiency, supporting Web 3.0 development, and improving foreign exchange market efficiency. Not to mention the awareness and capability to manage risks."
He noted, "Some institutions that can provide application scenarios lack the technology and experience to issue stablecoins and manage various financial risks. There are multiple models for participating in stablecoins; for these institutions, a more practical approach seems to be collaborating with other stablecoin issuers to provide application scenarios rather than pursuing the role of issuer."
He also stated that the trend of bubble formation is more concerning. "Recently, with the heated speculation around stablecoin concepts, there has been excessive excitement in the market. Some listed companies, regardless of whether their core business is related to stablecoins or digital assets, have seen their stock prices rise and trading volumes increase simply by claiming an intention to develop stablecoin business, significantly boosting their visibility. 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, "The Hong Kong regulatory authorities have noticed that scams have recently emerged, leveraging the promotion of digital assets and stablecoins, causing losses to the public. The 'Stablecoin Regulation' will take effect on August 1, and according to the regulations, promoting any unlicensed stablecoin to the public in Hong Kong will be illegal."
Meanwhile, Hong Kong's Financial Secretary Paul Chan recently stated at an annual report press conference that stablecoins should not become objects of speculation. The digitalization of asset markets is a long-term game, and stablecoins should play a stabilizing role without short-sighted views. He believes that Hong Kong's development pace is currently faster than that of other financial centers. Paul Chan also revealed that stablecoins are one aspect of the digitalization of Hong Kong's financial market, allowing for the tokenization of currency intermediaries in transactions, and he believes that different assets will be tokenized in the next steps, but the development process will take time, and there will not be a full tokenization for now.
Analysis: Possible Invitation-Only Application System to Form a Dual-Track Regulatory Framework
On July 19, according to Caixin, two sources indicated that the licensing for stablecoin issuers will not be conducted through a self-download and unified written application submission process, but rather arranged in a manner similar to an invitation-only application system. One source explained that, in practical terms, the Hong Kong Monetary Authority, which is responsible for regulating licenses, will communicate in advance with interested stablecoin license applicants to understand whether they meet the basic application qualifications. Only after obtaining basic recognition in pre-communication will the Monetary Authority issue the application forms.
On July 23, according to Hong Kong Wen Wei Po, Ping An Securities released a report on stablecoins, indicating that Hong Kong may form a dual-track regulatory framework of "USD stablecoins connecting to international markets + HKD stablecoins connecting to the mainland," which not only consolidates the financial attributes of the HKD but also provides a "testing ground" for the internationalization of the RMB. 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-USD stablecoins will gradually increase, potentially promoting the establishment of a unified international regulatory system in the future.
Additionally, 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 HKD-pegged (or partially pegged) stablecoins outside of Hong Kong. China's active layout in the stablecoin market can inject new momentum into the internationalization of the RMB and break the monopoly position of USD stablecoins.
Banks Compete to Become Custodians
According to 21st Century Business Herald, some institutions intending to apply for licenses have already selected custodial banks: ZhongAn Bank and Deutsche Bank have been chosen by institutions; Standard Chartered Bank and Tianxing Bank are also potential custodial banks; HSBC has recently launched virtual asset-related services; in addition, Chinese-funded banks in Hong Kong are also actively laying out, with China Merchants Bank's China Merchants Yonglong Bank increasing its promotion of stablecoin custody services.
Banks can leverage their custodial roles to expand distribution and trading businesses, further enriching their sources of income. For Hong Kong's banking industry, in a low-interest-rate environment, reserve custody business is an ideal light asset business.
Industry insiders estimate that the average industry custody fee rate is between 0.1% and 0.5%. Taking Circle, the "first stablecoin stock," as an example, it needs to pay over a hundred million USD in custody fees to custodial institutions each year. Although the prospects for custody business are broad, 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 licensing digital asset trading and custody service providers, aiming to strengthen the regulation of crypto asset custody businesses and streamline related licenses into several categories such as VATP, VAOTC, and VA Custody.
According to Caixin, some stablecoin concept stocks have taken the opportunity to conduct equity financing amid the hype. ZhongAn Online, which initiated the investment boom in stablecoin concept stocks, announced on June 26 that it plans to place 220 million shares at HKD 18.25 per share and completed the placement on July 4, raising HKD 3.92 billion; meanwhile, Lianlian Digital, which has expressed its intention to evaluate the feasibility of applying for stablecoin licenses in Hong Kong and Singapore, signed a share placement agreement on July 12, planning to place 38.4 million shares at HKD 10.25 per share, raising HKD 393.6 million.
Overall, with the "Stablecoin Regulation" officially taking effect on August 1, Hong Kong's stablecoin market will welcome a new landscape. As the market matures, it is expected that stablecoins will play a more important role in cross-border payments and the digital asset market in the future. However, the 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.
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