Hong Kong's stablecoin officially launched on August 1: key points on licensing, regulation, and bank custody explained in one article.

Hong Kong's layout in the digital asset sector continues to accelerate! The highly anticipated Hong Kong "stablecoin regulation" will officially take effect on August 1 (next Friday). The Financial Management Bureau plans to announce the outline of the "stablecoin issuer licensing system" on the 28th, providing more detailed guidance for applicants to clarify the specific requirements for stablecoin issuers regarding AML, reserves, information disclosure, and more. Against the backdrop of a big pump in the stock market of stablecoin concept stocks, the President of the Hong Kong Financial Management Bureau, Yu Weiwen, wrote an article titled "Stablecoins Moving Steadily and Far," suggesting to "avoid excessive speculation," meaning to be vigilant against excessive conceptualization and bubble trends, and to remind everyone to be vigilant against financial risks. The implementation of this new regulation will not only bring a new pattern to Hong Kong's stablecoin market but will also have a significant impact on the development of global digital finance.

1. Call for caution against speculation: Initial license issuance will be strictly controlled

The Chief Executive of the Hong Kong Monetary Authority, Eddie Yue, pointed out in an article that in light of the enthusiastic discussions in the market and society regarding stablecoins over the past month, it is still necessary to strengthen cooling measures and remain vigilant against excessive speculation in the market and public opinion.

He first pointed out the problem of "over-conceptualization"; many institutions still remain at the conceptual stage in their understanding of stablecoins, lacking the technology for the issuance of stablecoins and the experience and ability to manage various financial risks. He suggested that for such institutions, a more pragmatic approach would be to collaborate with other stablecoin issuers to provide application scenarios, rather than pursuing becoming an issuer.

Yu Weiwen also stated that what deserves more attention is the "bubble trend". "With the recent hype around the stablecoin concept, market sentiment has become overly exuberant. Some listed companies, regardless of whether their main business is related to stablecoins or digital assets, as long as they claim to have intentions to develop stablecoin business, their stock prices can 'turn stone into gold', stock prices rise, trading volume increases, and the company's reputation also greatly improves." He emphasized, "In fact, we have clearly stated earlier that initially we will only approve a few stablecoin licenses at most."

At the same time, Hong Pi-ching, the head of the Hong Kong Financial Services Commission, also stated at a recent annual report press conference that stablecoins should not become objects of speculation. The digitalization of the asset market is a long race, and stablecoins should play a stabilizing role and not be short-sighted. Hong Pi-ching also revealed that stablecoins are part of the digitalization of Hong Kong's financial market, enabling the tokenization of trading currency intermediaries. It is believed that the next step will involve different assets being tokenized, but the development process will take time and there will not be a comprehensive tokenization for now.

Important reminder: The Hong Kong regulatory authority has noted that there have been recent fraudulent activities promoting digital assets and stablecoins, resulting in public losses. The Stablecoin Ordinance came into effect on August 1. According to the provisions of the ordinance, promoting any unlicensed stablecoin to the Hong Kong public is considered illegal from the effective date.

2. License Application: Either an invitation application system may be adopted, forming a dual regulatory framework

Currently, there are three groups of testers in the stablecoin sandbox, namely, Yuan Coin Innovation Technology Co., Ltd., JD CoinChain Technology (Hong Kong) Co., Ltd., and a joint venture established by Standard Chartered Bank (Hong Kong), Animoca Brands, and Hong Kong Telecommunications (HKT). Recently, according to senior industry insiders in Hong Kong, there are currently 50 to 60 companies interested in applying for a stablecoin license in Hong Kong, including both central enterprises and financial institutions from mainland China, as well as internet giants.

On July 19, according to reports from Chinese media, two sources indicated that the stablecoin issuer license will not be issued through a method where applicants download forms and submit written applications themselves, but rather will be arranged in a manner similar to an invitation application system. One source explained that, in practical terms, the Hong Kong Monetary Authority, responsible for regulation and licensing, will communicate in advance with institutions interested in applying for stablecoin licenses to understand whether they meet the basic application qualifications. Only after obtaining basic recognition in the preliminary communication will the Monetary Authority issue the application forms.

On July 23, according to reports from Hong Kong media, Ping An Securities released a stablecoin report indicating that Hong Kong may form a dual-track regulatory framework of "USD stablecoin connecting internationally + HKD stablecoin connecting Mainland China," which not only strengthens the financial attributes of the HKD but also provides a "testing ground" for the internationalization of the RMB. Hong Kong's definition of the scope of stablecoins is relatively broad, not limited to a specific fiat stablecoin. With the rapid development of Hong Kong's stablecoin market, it is expected that the market share of non-USD stablecoins will gradually increase, and it is hoped that a unified international regulatory system will be established in the future.

In addition, the Ping An Securities report also mentioned that the stablecoin business activities regulated by the Hong Kong jurisdiction not only include the issuance of designated stablecoins in Hong Kong but also the issuance of stablecoins pegged to the Hong Kong dollar (or partially pegged) outside of Hong Kong. China's active layout in the stablecoin market can inject new momentum into the internationalization of the Renminbi and break the monopoly of the dollar stablecoin.

3. Banks Compete to Act as Custodians: A New Blue Ocean for Light Asset Business

According to Chinese media, some institutions interested in applying for licenses have finalized their custodians: ZhongAn Bank and Deutsche Bank have been selected by the institutions; Standard Chartered Bank and Tianxing Bank are also potential custodians; HSBC has recently launched new virtual asset-related services; in addition, Chinese-funded banks in Hong Kong are also actively deploying, with China Merchants Bank's China Merchants Yonglong Bank increasing its promotion of stablecoin custody services.

Banks can leverage their custodial identities to expand distribution and trading businesses, further enriching their sources of income. For the Hong Kong banking industry, in a low interest rate environment, reserve custody business is an ideal light asset business. Industry insiders estimate that the average level of custody fees in the industry is between 0.1% and 0.5%. Taking Circle, known as the "first stock of stablecoin," as an example, it needs to pay hundreds of millions of dollars in custody fees to custodians each year.

Despite the broad prospects of custody services, regulation is becoming increasingly stringent. The Hong Kong Financial Services and the Treasury Bureau and the Securities and Futures Commission have initiated a joint public consultation on legislative proposals regarding the licensing system for digital asset trading and custody service providers, aimed at strengthening the regulation of cryptocurrency custody businesses and streamlining the relevant licenses into several types such as VATP, VAOTC, and VA Custody.

4. The Financing of Stablecoin Concept Stocks: Market Heat and Risks Coexist

Some stablecoin concept stocks are taking the opportunity to conduct share placement financing. Zhong An Online, which has sparked this wave of investment enthusiasm for stablecoin concept Hong Kong stocks, announced on June 26 that it plans to issue 220 million shares at HK$18.25 per share and will complete the placement on July 4, raising HK$3.92 billion; it also indicated that it is evaluating the feasibility of applying for stablecoin licenses in Hong Kong and Singapore. Lianlian Digital also signed a placement agreement on July 12, intending to issue 38.4 million shares at HK$10.25 per share to raise HK$393.6 million. This shows the market's enthusiasm for stablecoins and provides financing opportunities for related companies.

Conclusion:

Overall, with the official implementation of the "Stablecoin Regulation" on August 1st, Hong Kong's stablecoin market will usher in a new landscape. Through a strict licensing system and regulatory requirements, Hong Kong aims to ensure the healthy development of the stablecoin market and effectively prevent financial risks. As the market gradually matures, stablecoins are expected to play a more important role in cross-border payments and the digital asset market in the future. This initiative by Hong Kong will not only consolidate its position as an international financial center but also provide an important reference model for the development of global digital finance.