The regulator made its announcement after considering the feedback received from 58 submissions in response to its discussion paper on crypto and stablecoins

The Hong Kong Monetary Authority (HKMA) has laid out plans for regulating stablecoin issuers. As per a press release by the regulator earlier today, mandatory licensing will be required by entities operating stablecoin services in Hong Kong.

The regulator made the announcement after taking into account the feedback received from 58 submissions in response to its discussion paper on crypto and stablecoins. A number of crypto firms, including Binance, Circle, Ripple Labs, Matrixport, Animoca Brands and Symphony Digital, were involved in the feedback.

The monetary authority will focus on supervising the governance, issuance and stabilization of fiat-backed stablecoins. Furthermore, it will require stablecoin issuers to maintain reserves that match the amount of crypto in circulation. The reserves must be of high quality and high liquidity, with the value of the assets meeting the value of the outstanding stablecoins at all times.

As per the Hong Kong Monetary Authority, algorithmic stablecoins, or stablecoins that derive their value from algorithms or arbitrage, will not be accepted. The regulator plans to develop a comprehensive regulatory framework for stablecoins, based on the key principle of full backing and redemption. The framework will also restrict firms from diverging from their core business. For example, wallet operators will not engage in any type of lending activity.

The regulatory arrangements could be in the form of new legislation or amendments to existing laws. The government could implement the regulations in 2023- 24 after considering feedback, market developments, and international discussions.

Since the disclosure in 2021 that much of Tether’s (USDT) reserves, the largest by market capitalization, were unsecured short-term debt, stablecoin reserves have come under increased regulatory scrutiny. The US, the European Union (EU), and Japan are also working on controls for these coins’ issuers.

Chief Executive of the HKMA, Eddie Yue, said: An appropriate regulatory environment will help address financial stability risks possibly posed by stablecoins, and promote the orderly and sustainable development of the industry.