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 clear and enforceable redemption mechanisms that allow holders to exchange stablecoins for fiat currency at a 1:1 ratio in the short term.
The requirement is part of the city’s new stablecoin regulatory regime, which legally came into effect this year and establishes a licensing framework overseen by the Hong Kong Monetary Authority (HKMA).
Hong Kong’s regulatory structure takes shape
The city is currently establishing a “clear institutional framework” to supervise virtual assets, with a focus on issuance and backing of stablecoins, according to a statement from Louis Chi-fun, a member of Hong Kong’s Stablecoin Review Tribunal and the government’s Web3 Development Working Group.
Regulators in the China Special Administrative Region require applicants to have a capital of at least HK$25 million to ensure issuers have the financial capacity to absorb market shocks and meet redemption obligations under stress, with the special condition that only fiat-referenced stablecoins be fully backed by traditional currencies and liquid assets.
Chihun said that to properly and reliably support the value of stablecoins, fiat funds raised by issuers need to be invested in highly liquid and low-risk assets.
Chi-hung added that “stablecoin issuers will also be required to provide compliance documentation to regulators through independent audits.” These companies are expected to be independently audited by specialist firms such as Deloitte, which will issue audit reports as required by regulations, and also verify whether the assets held by the issuer are truly low risk.
Part of the auditor’s task is to “ensure that asset allocation is consistent with public information, thereby reinforcing market confidence.”
The global regulatory environment continues to expand
Chi-hung believes that Hong Kong’s strong regulatory framework will protect investors’ safety and lay a solid foundation for the development of the stablecoin and Web3 industries. The framework is expected to enable international organizations to issue or use stablecoins in Hong Kong, facilitating the continued development of the local virtual asset ecosystem.
Hong Kong is in a relatively favorable position compared to the global regulatory landscape, including the European Union’s Crypto Asset Market Regulation, which came into effect on June 30, 2024.
Around the same time, Hong Kong’s stablecoin regime came into effect, and the US passed the GENIUS Act this year, introducing some form of regulatory oversight into the crypto and stablecoin space.
