Hong Kong announces 6-month stablecoin regulatory transition

The Hong Kong Monetary Authority (HKMA) will implement a six-month transition period with special rules as part of its new framework for stablecoins, which is set to take effect on Friday.

According to a Wednesday report by local news outlet Radio Television Hong Kong, the HKMA will introduce a six-month transitional arrangement when the new stablecoin framework becomes active. The provisional rules also include the issuance of temporary licenses to issuers capable of complying with regulatory requirements.

However, if a Hong Kong stablecoin issuer fails to comply with the new rules within three months of the new regulations taking effect on Friday, they will be required to wind down their operations within four months. Issuers that the HKMA believes cannot comply with the new rules will be forced to cease operations within a single month of receiving their notice, the report stated.

The HKMA said it will issue the first round of licenses in the future but emphasized that only a limited number will be granted initially. It also noted that it will not disclose the names of applicants.

Related: Chinese blockchain Conflux launching offshore yuan-backed stablecoin

Hong Kong’s new stablecoin regime

The framework includes strict requirements for stablecoin issuers, including full backing with high-quality liquid reserves, redemption processing within one business day, and maintaining a physical presence in Hong Kong. Issuers must also have adequate financial resources.

Additional mandates include Know Your Customer procedures, wallet ownership verification, ongoing transaction monitoring and blacklisting of high-risk wallet addresses.

The HKMA will have the authority to investigate suspected noncompliance. Enforcement actions may include fines, public warnings, license suspension or revocation, and referrals to law enforcement.

The new regulations come amid plans to criminalize unlicensed stablecoin promotion in the region.

Related: Hong Kong prepares third batch of tokenized bonds, eyes more offerings

Who’s racing for a license?

Interest in stablecoin issuance has grown ahead of the framework’s launch. China’s e-commerce behemoth JD.com has reportedly registered entities tied to a potential stablecoin rollout just days ahead of the Hong Kong stablecoin regulations taking effect.

The company, often described as China’s Amazon, registered two related entities through a subsidiary and is also one of the participants in Hong Kong’s stablecoin issuer sandbox program.

Similarly, Ant International reportedly plans to apply for stablecoin issuer licenses in both Hong Kong and Singapore. Ant Group is part of the Chinese conglomerate Alibaba Group, the owner of the world’s largest digital payment platform, Alipay, which serves over 80 million merchants and 1.3 billion users worldwide.

In February, Standard Chartered Bank Hong Kong, Animoca Brands and Hong Kong Telecommunications announced a joint venture to issue a stablecoin backed by the Hong Kong dollar.

Magazine: Hong Kong hoses down stablecoin frenzy, Pokémon on Solana: Asia Express