Hong Kong will start enforcing its Stablecoin Ordinance on Aug. 1, making it illegal to offer or promote unlicensed fiat-referenced stablecoins (FRS) to retail investors.
The new law introduces criminal penalties of up to a level five fine of 50,000 Hong Kong dollars (about $6,300) and a maximum sentence of six months imprisonment.
The Hong Kong Monetary Authority (HKMA), the special administrative region’s central bank, issued a public warning on Wednesday, urging investors to steer clear of unlicensed offerings to avoid inadvertently breaking the law.
HKMA Chief Executive Eddie Yue said in the warning that the upcoming regulation aims to bring credibility and stability to the budding stablecoin sector while safeguarding investors from fraud and excessive speculation.
Excerpt from Hong Kong’s upcoming Stablecoin Ordinance. Source: Hong Kong government
Hong Kong reins in the stablecoin “euphoria”
Yue said a market frenzy fueled by hype surrounding stablecoin announcements led to unjustified stock prices and trading volume spikes. “It seems necessary to further rein in the euphoria,” Yue wrote in the Wednesday announcement.
On Thursday, Bloomberg reported that there were as many as 50 companies applying for stablecoin licenses. In June, Guotai Junan shares jumped 300% after its banking license was extended to include digital assets.
Yue said that while many institutions approached the central bank to express interest in getting a stablecoin license, many proposals were vague, conceptual and lacked realistic implementation plans.
“They also fail to put together viable and concrete plans as well as implementation roadmaps, let alone demonstrate their awareness of risks and competence in managing them,” Yue said.
He added that while some provide viable use cases, some lack the technical expertise to issue stablecoins and capabilities in managing financial risks.
Because of these, Yue said only a handful of licenses will be initially granted, while most applicants should not expect approvals.
Related: Shenzhen issues warning on stablecoin scams, illegal crypto fundraising
Crypto advertising in other jurisdictions
Like Hong Kong, other jurisdictions, such as the European Union, have prohibited unlicensed companies from promoting crypto products.
The Markets in Crypto-Assets Regulation (MiCA) imposes more substantial financial fines of at least 5 million euros (around $5.8 million) or 3% to 12.5% of companies’ annual turnover for entities or individuals found violating its provisions. However, the regulations do not include imprisonment.
In the United Kingdom, the Financial Conduct Authority (FCA) has struggled to enforce its rules. As of January, only about half of flagged illegal crypto ads were taken down.
Hong Kong’s approach is one of the strictest to date, adding criminal penalties to its consumer protection toolkit as it seeks to balance fintech innovation with regulatory oversight.
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