How Will Hong Kong's Stablecoin Regulation Drive Innovation & Risk Management?

CGTN Europe

CGTN Europe spoke to Neil Tan, Member of the HKSAR Web3 Task Force under Financial Secretary Paul Chan.

Transcript

00:00Hong Kong's new stablecoin regulation came into force on Friday

00:04as it positions itself to become the leading Asian center for cryptocurrency.

00:09The new rules mean any company offering stablecoins to the public

00:12must first be licensed by the Hong Kong Monetary Authority

00:15and all stablecoins must be fully backed by fiat currency held in regulated banks.

00:22Well, earlier I spoke to Neil Tan, who's closely involved with fintech in Hong Kong.

00:26I started by asking him why the city made this move now.

00:31Back in November 2022, Hong Kong had taken a turn going into Web3

00:36and really trying to focus on building up this ecosystem.

00:39So inside of the roadmap, obviously we kicked it off with virtual asset trading platforms

00:43and other different topics, pushing into custodial services,

00:48as well as tokenization and real-world assets.

00:52We've actually had a number of different trials,

00:54whether it's talking about tokenized green bonds,

00:56but stablecoins is a basic ingredient inside of building up this entire ecosystem.

01:02So right now, ultimately, stablecoins are at about a $200 billion opportunity,

01:08but it's really targeted to grow all the way to about $2 trillion by 2028.

01:13So I think that Hong Kong has really leaned into the whole Web3 space.

01:19Of course, at the same time, having a regulatory regime

01:22and legislation inside of this space puts a lot of other sort of guardrails around this particular area,

01:28which did not exist before.

01:30So how do you actually manage risk?

01:32How do you manage the players that are inside of it?

01:35And what's the regulatory and compliance requirements for people to actually issue this

01:40and manage this in a responsible way?

01:42So really, it's both market and also from a governance perspective,

01:47I believe that's what the direction is.

01:50Now, we're expecting around a handful of licenses to be released at some point next year,

01:55and there's around 50 firms at least that are eyeing those licenses.

02:00So what kind of competition or innovation are we likely to see, do you think?

02:05I think there's going to be a lot of different players that are vying for this.

02:09I think you're going to see a mixture of both local China-based as well as international as well.

02:14And, you know, there's also different talks about different state banks to be inside of it.

02:19So I think as far as players are concerned, there won't be a shortage of applicants,

02:24and there will be a very strong mix of both local China and also international players.

02:30Having said that, I think key in terms of winning the license is really in terms of commercialization and use cases, right?

02:38Because, you know, ultimately you want to have somebody that uses the license

02:44and gets people to actually use the different services for that purpose, right?

02:49So use cases, whether, you know, you talk about trade or other facilities,

02:55that's going to be a very key evaluation metric for the people that actually get the license.

03:00So what sort of safeguards do you think will be in place for license issuers?

03:04So first off is, you know, the paid-up capital, $25 million Hong Kong dollars.

03:10That's a requirement, so basic sustainability, if you will.

03:15The second thing is that, you know, all of the stablecoins need to be fully backed,

03:20one-to-one, with high-quality and high-liquidity reserve assets.

03:24So it's not going to be things that you have to wait weeks, months, years, if you will,

03:31to liquidate those and then return the funds to the ultimate owners.

03:37In addition to that, obviously there's a fair amount of oversight,

03:41so daily reporting to the HKMA as well as reserve audits by independent parties.

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