Hong Kong's Secretary for Financial Services and the Treasury, Christopher Hui, stated in response to a legislator's inquiry that the government has thoroughly considered the potential risks of stablecoins to the financial system while formulating the regulatory framework under the Stablecoin Ordinance. Licensed stablecoin issuers are explicitly required to implement corresponding risk management measures, including investing reserve assets in qualified assets such as bank deposits, high-quality and highly liquid bonds, and holding them in Hong Kong banks. If necessary, the Hong Kong Monetary Authority (HKMA) can impose additional regulatory requirements on licensees to ensure financial stability.
Following the formal launch of compliant stablecoins, the HKMA will conduct ongoing and effective supervision to ensure licensees adhere to relevant regulatory requirements. Simultaneously, the HKMA will closely monitor the operational status of licensees and continuously assess the impact of stablecoin issuance and circulation on Hong Kong's financial system. Furthermore, relevant international organizations, such as the Bank for International Settlements, are conducting further research on the impact of widespread stablecoin adoption on the traditional banking system. The HKMA actively participates in this work to ensure risk management and control under Hong Kong's regulatory framework meets international standards.
The HKMA has been conducting various trials on new types of payment instruments, including central bank digital currency networks, tokenized deposits, stablecoins, and cross-border linkages for fast payment systems. Two licensed stablecoin issuers are also actively participating. These payment tools each have distinct characteristics, and their future development prospects will largely be determined by market demand across different application scenarios. The HKMA will maintain close communication with the two licensed stablecoin issuers, encouraging them to further explore synergies and connectivity between compliant stablecoins and other new payment tools to create value for the real economy and financial activities.
Currently, the Stablecoin Ordinance stipulates that sales of stablecoins to the public must be conducted through institutions specified and regulated under the Ordinance. After the Ordinance took effect, the HKMA has written to unregulated entities in the market engaged in stablecoin sales, explaining the legal provisions and requirements, and maintains follow-up during routine work to ensure these entities make improvements. Depending on the nature of individual cases, the HKMA can refer matters to the police or the Department of Justice for follow-up as needed.
Meanwhile, during the Securities and Futures Commission's (SFC) monitoring of suspected unlicensed activities under the Anti-Money Laundering Ordinance, including situations where individuals actively promote their services to the Hong Kong public, if such active promotion involves unregulated stablecoins, the SFC will also share relevant information with the HKMA through existing mechanisms for follow-up. Overall, financial regulators use effective market surveillance and take appropriate actions to curb illegal or improper activities, thereby protecting users. Financial regulators also work closely with law enforcement agencies to establish notification mechanisms, ensuring illegal incidents are properly handled.
If overseas institutions actively promote the sale of their stablecoins to the Hong Kong public, the HKMA can seek assistance from relevant authorities in other jurisdictions through existing regulatory cooperation mechanisms. The public should also note that only purchases of regulated stablecoins from specified regulated institutions are protected under the Stablecoin Ordinance. If citizens purchase unregulated stablecoins through unregulated channels, they must bear the risks themselves.
Furthermore, the Hong Kong Government and the SFC will present a bill to the Legislative Council within the year to establish a regulatory regime for institutions providing virtual asset trading, custody, advisory, and management services, aiming to more comprehensively regulate virtual asset activities, including those involving stablecoins, across different operational models. Regarding publicity and public education, the Hong Kong Government, together with the HKMA and SFC, has been committed to deepening public and industry understanding of the Stablecoin Ordinance, stablecoins, and other digital assets, as well as raising public awareness against scams.
This includes publishing articles, press releases, and social media posts to remind the public to remain vigilant against promotions of unlicensed stablecoins, and repeatedly stating that stablecoins are not tools for investment or speculation but one type of payment instrument utilizing blockchain technology. In response to earlier market volatility related to stablecoin concepts, financial regulators have also urged the public to exercise caution, conduct in-depth analysis of relevant information, and avoid making irrational investment decisions based solely on market hype or price momentum.
Additionally, the SFC has used methods such as television interviews and forum speeches to enhance public understanding of the risks associated with trading virtual assets through institutions not licensed by the SFC, for example, the high potential risks of such unregulated entities, including lack of transparency, potentially unsound operations, and investors possibly having no protection. The Hong Kong Government and financial regulators will continue to strengthen related publicity and public education efforts and will publish updated lists of licensed stablecoin issuers and other specified regulated institutions on the financial regulators' websites to help the public make informed and discerning choices.
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