Hong Kong ups competitiveness with new stablecoin laws

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Hong Kong’s stablecoin bill and its continued issuance of digital asset policies give it a competitive edge in the race to become the global digital assets hub, says the city-state’s financial secretary, Paul Chan.

In May, Hong Kong legislators passed the Stablecoin Ordinance, becoming the first major economy with an act fully dedicated to stablecoins. It takes effect in August, and according to Chan, it will make Hong Kong a haven for digital asset activity.

“We have also just completed the legislation of stablecoins, which will come into effect on August 1, making Hong Kong one of the first jurisdictions in the world to establish a statutory regulatory framework for stablecoins,” Chan stated in his speech at the Wealth Management Expo.

Hong Kong’s stablecoin pursuits come amid a change of tune from mainland China, which has been an anti-digital asset for years. Speaking at a forum in Shanghai, the Governor of the People’s Bank of China (PBoC), Pan Gongsheng, acknowledged the increasing importance of stablecoins in global commerce and the need for China to keep up.

Stablecoins and other blockchain innovations “are enabling real-time settlement at the point of payment, fundamentally reshaping the traditional payment infrastructure and significantly shortening the cross-border payment chain,” he told the attendees.

However, China has not announced any plans to let up on its digital asset restrictions, leaving Hong Kong as the testing ground for Chinese firms.

Hong Kong builds on regulatory clarity with new policy statement

Meanwhile, the city-state has published yet another policy statement offering more clarity on digital asset regulation.

Dubbed ‘Policy Statement 2.0 on the Development of Digital Assets in Hong Kong,’ it introduces the new ‘LEAP’ framework that doubles down on stablecoin and asset tokenization policies. The first policy statement was published in October 2022.

Under LEAP, the city will unify its regulatory framework for all virtual asset service providers (VASPs), from exchanges and stablecoin issuers to custodians and brokerages. The Securities and Futures Commission (SFC) will spearhead the licensing of these VASPs, with the Hong Kong Monetary Authority (HKMA) charged with the legal oversight over the tokenization of real-world assets (RWAs).

The new policy also intends to push for tokenization, with the government pledging to regularly issue tokenized bonds. It will also incentivize market players to tokenize RWAs through clearer laws and expanded market opportunities, such as allowing secondary trading of tokenized exchange-traded funds (ETFs).

Hong Kong will promote “the tokenisation of a broader range of assets and financial instruments, demonstrating the versatility of this technology across sectors such as precious metals (e.g. gold) and non-ferrous metals, and renewable energy (e.g. solar panels),” the policy statement said.

In one of the more impactful proposals for investors, the policy will allow private funds and family offices to claim tax breaks on profits generated from tokenized securities and digital asset holdings.

The government also pledged to partner with academia to strengthen industry talent and welcomed proposals on how it can better support real-world usage of stablecoins.

“We strive to build a more flourishing digital asset ecosystem which will integrate the real economy with social life through a prudent regulatory regime and encouragement to market innovation, such that it will bring benefits to both the economy and society while consolidating Hong Kong’s leading position as an international financial centre,” commented Chan.

Industry experts noted that the new policy statement came barely a week after the United States Senate passed the GENIUS Act, which establishes a regulatory framework for stablecoins. According to Andrew Fei, a partner at King & Wood Mallesons law firm, accelerated regulatory efforts show that the “global race for digital assets innovation is well underway.”

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