The Hong Kong government aims to submit licensing bills for stablecoin and over-the-counter (OTC) crypto trading frameworks in order to regulate the crypto industry and enhance investor protection.
Christopher Hui, the Secretary for Financial Services and the Treasury, made the announcement in response to a lawmaker at the Legislative Council.
The Financial Services and the Treasury Bureau (FSTB) launched a public consultation earlier this month on legislative proposals for introducing a licensing regime specifically designed for providers of OTC crypto trading services.
The consultation period is set to conclude on April 12, allowing stakeholders and the public to provide their input.
In addition to the OTC trading framework, the FSTB and the Hong Kong Monetary Authority (HKMA) jointly initiated a consultation in December on regulating stablecoin issuers.
The proposal suggests that all stablecoin issuers referencing fiat currencies should obtain a license from the HKMA.
The consultation period for this proposal ended on February 29.
Hong Kong to Submit Bills Based on Outcomes from Consultations
Based on the outcomes of the consultations and the progress of preparatory work, the government intends to submit bills related to these licensing regimes to the Legislative Council promptly, according to Hui.
“Subject to the consultation outcomes and progress of the preparatory work, the Government will submit bills on the above licensing regimes to the Legislative Council as soon as practicable.”
Highlighting the need for regulation, Hui mentioned that the Securities and Futures Commission (SFC) has been increasingly cracking down on crypto-related criminal cases.
In 2021, there were 1,397 cases, which rose to 2,336 cases in 2022, and further increased to 3,415 cases in 2023.
The total amount of money involved in these cases reached nearly HK$4.4 billion ($562.6 million) in 2023, compared to HK$1.7 billion in 2022 and HK$824 million in 2021.
Hui also mentioned that regulatory authorities are taking a strict approach to weed out bad actors from the industry.
He highlighted the example of the JPEX crypto exchange, which was shut down by authorities last year.
As of February 20, 70 individuals associated with the platform have been arrested, although no prosecutions have been initiated yet.
Official Asks for Approval of Yuan-Linked Stablecoins
Earlier this month, the Hong Kong General Chamber of Commerce (HKGCC) asked policymakers to consider allowing the issuance of Chinese yuan-linked stablecoins.
The influential business organization emphasized the importance of retaining and attracting talent and businesses in Hong Kong and proposed the exploration of a “Virtual Asset Connect Scheme.”
The HKGCC suggested that the government should permit the issuance of yuan-linked stablecoins or those backed by a basket of various fiat currencies, including the yuan, Hong Kong dollar, or U.S. dollar.
Meanwhile, experts believe Hong Kong will greenlight spot crypto exchange-traded funds (ETFs) by the middle of this year.
Gary Tiu, the executive director and head of regulatory affairs at OSL, a Hong Kong-licensed cryptocurrency exchange, has said OSL is in close communication with multiple fund companies, adding that five to ten firms are considering introducing a spot crypto ETF.
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