Today Hong Kong’s Legislative Council passed the Stablecoin Bill for fiat-referenced stablecoins

The legislation is expected to come into force later this year and is seen as a key pillar in Hong Kong’s desire to maintain and enhance its position as an international financial center.

Hong Kong's Legislative Council has passed the Stablecoin Bill, marking a significant step in the city-state's efforts to become a leading center for digital assets.

The legislation, which is expected to come into force later this year, introduces a comprehensive regulatory framework for fiat-referenced stablecoins, aiming to foster innovation while ensuring stability in the financial system.

Last year, the Hong Kong Monetary Authority (HKMA) launched a stablecoin sandbox to test new concepts and use cases for stablecoins. The sandbox, currently hosting three initiatives, has been closely followed by industry stakeholders.

"The Ordinance has established a risk-based, pragmatic, and flexible regulatory regime," said Mr Eddie Yue, CEO of HKMA. "We believe that a robust and fit-for-purpose regulatory environment would provide favourable conditions to support the healthy, responsible, and sustainable development of Hong Kong's stablecoin and the broader digital asset ecosystem."

One of the groups in the sandbox is a joint venture between Standard Chartered Bank Hong Kong, Hong Kong Telecom (HKT), and web3 firm Animoca Brands to launch a stablecoin.

Another sandbox member is JINGDONG Coinlink Technology, a subsidiary of China's e-commerce giant JD.com. The third member is RD Innotech, a startup whose backers include Zhong An Digital Asset Group (affiliated with digital bank ZA Bank) and regulated crypto exchange HashKey. Today ZA Bank welcomed the passage of the Bill and is positioning itself as providing reserve banking services. Standard Chartered already provides similar services to stablecoin issuers Paxos and StraitsX in Singapore.

While Hong Kong's draft bill, which totals 250 pages, does set a minimum capital requirement of HK$25 million and there are extensive penalties will be imposed on an unregulated entity that markets a stablecoin, it delegates important rulemaking to the Hong Kong Monetary Authority.

Hence, some of the legal requirements are relatively loose, such as requiring the reserve assets that back a stablecoin to be in the same currency and "of high quality and high liquidity with minimal investment risks." That contrasts with regulations and proposals in other regions which are more prescriptive regarding reserves. That will likely be added when the HKMA formulates rules.

Issuers must be regulated if they issue a HKD stablecoin, if they are based in Hong Kong or if they market to Hong Kong consumers.

Meanwhile, stablecoin legislation in the United States is progressing with the GENIUS Act passing a procedural vote on Monday.