Crypto industry optimistic about stablecoins in Hong Kong but faces high compliance costs
In the days after Hong Kong
passed a bill to regulate stablecoins on May 21, people in the industry celebrated the government's forward-looking stance on the cryptocurrency assets, but its stringent requirements – similar to how it regulated other virtual assets – could be a double-edged sword in the near term.
'Regular independent audits and strict disclosure obligations further bolster confidence in the sector, although in the short run it may increase operational costs and limit market entry, particularly for smaller or emerging stablecoin issuers,' said Amita Haylock, technology partner at Mayer Brown law firm.
As the 2023 law on virtual asset trading platforms (VATPs) did for other cryptocurrencies, the new stablecoin ordinance – governing assets pegged to fiat currencies such as the US dollar (USD) and Hong Kong dollar (HKD) – imposes strict rules with high compliance costs on companies that require a licence to do business in the city. Stablecoin licences are governed by the Hong Kong Monetary Authority (HKMA), unlike other virtual assets, which fall under the Securities and Futures Commission (SFC).
The VATP law has been criticised by some industry insiders as too onerous and
hindering business activity in the city , hurting Hong Kong's efforts to become a crypto hub. Yet also like the VATP law, the stablecoin bill is seen as offering regulatory clarity that could spur more innovation in the future.
An illustration featuring US President Donald Trump outside a cryptocurrency exchange in Hong Kong. Photo: Reuters
'I think the most important benefit is that it provides virtual asset businesses legal certainty,' Haylock said. 'Over time … the clarity provided in the stablecoins ordinance would encourage larger financial institutions to build token-based products in Hong Kong.'
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