Chinese firms operating in Hong Kong may face limitations regarding stablecoin activities, according to a recent report by Caixin. This potential shift in policy could significantly impact the virtual asset landscape in Hong Kong, especially as the region strives to become a global crypto hub.
The report indicates that mainland Chinese companies, including internet giants, state-owned enterprises, and financial institutions with operations in Hong Kong, might be required to withdraw from cryptocurrency-related activities. Furthermore, Hong Kong branches of several state-owned enterprises and Chinese banks are expected to refrain from participating in the pursuit of stablecoin licenses in Hong Kong.
This news arrives shortly after reports suggesting that HSBC and the Industrial and Commercial Bank of China (ICBC), the world's largest bank based on total assets, were planning to apply for stablecoin licenses in Hong Kong.
Hong Kong's new regulatory framework for stablecoins took effect on August 1st, accompanied by a six-month transition period. Regulators have stated that 77 institutions have expressed interest in applying for stablecoin licenses. However, according to Caixin, these recent policy changes could lead Chinese banks and other institutions to reconsider their applications. An anonymous source within the financial industry suggested that these entities might postpone their applications.
Prior to this potential policy shift, major Chinese institutions had shown considerable interest in Hong Kong's stablecoin market. For example, a subsidiary of China Merchants Bank launched a Hong Kong-based institutional crypto exchange in August. Additionally, the e-commerce giant JD.com reportedly registered entities connected to a possible stablecoin rollout just before Hong Kong's new stablecoin regime became effective. Ant International also registered related entities.
The Hong Kong Monetary Authority (HKMA) is spearheading the effort to establish a comprehensive supervisory regime for stablecoins. The new framework includes strict rules concerning reserves, redemptions, fund segregation, anti-money laundering (AML) measures, disclosure requirements, and operator checks. The framework is designed to mitigate risks like market manipulation, illicit financing, and consumer protection issues, fostering responsible innovation and attracting serious players committed to compliance and long-term growth.
The Securities and Futures Commission (SFC) and HKMA have cautioned investors about potential speculation-driven price swings stemming from licensing rumors. They have urged investors to exercise caution and avoid making irrational investment decisions based on market hype.
The contrasting regulatory approaches between mainland China and Hong Kong have influenced Chinese-backed firms' interest in obtaining crypto licenses in Hong Kong. While mainland China maintains a strict ban on cryptocurrency trading and mining, Hong Kong, as a Special Administrative Region, possesses a high degree of autonomy, including its financial regulatory policies.
Under Hong Kong's new stablecoin ordinance, offering or promoting unlicensed fiat-referenced stablecoins to retail investors is criminalized, setting a high bar for potential issuers. When the new rules were implemented, stablecoin companies operating in Hong Kong experienced double-digit losses, which market experts viewed as a healthy correction, considering the rules were stricter than anticipated. Following the establishment of stablecoin issuance rules, Hong Kong regulators have shifted their focus to crypto custody, introducing security requirements and banning smart contracts in cold wallet implementations.
