Thank you, Deputy President. I speak in support of the Stablecoins Bill (“the Bill”).
In recent years, virtual asset (“VA”) trading and other VA activities have developed rapidly. The relationship between the traditional financial system and the VA market has become increasingly close. For VA activities to sustain their development, it is essential to establish a sound regulatory environment. The establishment of a licensing regime for fiat-referenced stablecoins (“FRS”) issuers not only aligns with international financial regulatory trends, but also lays a solid foundation for the stable development of the local financial sector, thereby further consolidating Hong Kong’s position as an international financial centre.
Stablecoins, especially FRS pegged to fiat currencies, can be used as a medium of exchange in the real economy thanks to their payment function and liquidity. They enjoy the advantages of high transaction efficiency and extremely low transaction costs, which allow them to integrate into the mainstream financial system and gradually become the bridge between traditional finance and the virtual economy. At the same time, the growing prevalence of VAs also poses potential risks to monetary and financial stability. If stablecoin issuers have insufficient reserves or mismanage their assets, it may trigger a series of crisis, and in serious cases, affect the entire financial system. Therefore, it is necessary to establish a regulatory regime for FRS issuers, so as to mitigate the potential risks to financial stability, comply with international regulations on anti-money laundering and counter-terrorist financing, and provide adequate protection for users. This will create a conducive environment for compliant businesses in the process of promoting financial innovation, so that the VA industry can develop in a proper regulatory environment.
The Bill establishes a stringent licensing regime requiring licensees to ensure that the market value of the reserve assets must be equal to the par value in circulation, establish a redemption mechanism, and implement a risk management framework to address potential risks to financial stability. Moreover, the Bill also provides the Monetary Authority (“MA”) with investigatory and enforcement powers, and enables MA to expand its scope of regulation by notice published in the Gazette, so as to ensure that the regime remains forward-looking.
In fact, the European Union, Singapore and other places have enacted legislation to regulate stablecoin activities. As an international financial centre, Hong Kong must also shoulder the responsibility of maintaining global financial stability by adhering to the principle of “same activities, same risks, same regulations”. Aligning with international standards will enhance market confidence and help attract compliant institutions to establish a presence in Hong Kong.
The Hong Kong Monetary Authority has launched the stablecoin issuer sandbox to gain a deeper understanding of the business models of institutions intended to issue FRS in Hong Kong, and convey regulatory expectations and provide guidelines to them. The Bill explicitly limits the issuance of stablecoins to institutions regulated by MA or the Securities and Futures Commission, such as licensed VA trading platforms and banks. Issuers are also subject to stringent regulation. While striking a balance between innovation and protection of the public from fraud, the regime can promote sustainable development of the industry, and further guide VA activities towards professionalism.
The Bill eliminates doubts and uncertainties in the market through clear regulations, thereby attracting long-term capital input. VA is an integral part of the future financial industry. This Bill keeps pace with the times by managing risks at source and ensuring user protection.
With these remarks, Deputy President, I support the Bill.