On 12 March 2024, the Hong Kong Monetary Authority (HKMA) issued a press release announcing the launch of its new stablecoin issuer sandbox arrangement (“Stablecoin Sandbox”). The Stablecoin Sandbox is another step following the legislative proposal to implement a new regulatory regime for stablecoin issuers.1 The Stablecoin Sandbox will facilitate communications between the HKMA and interested stablecoin issuers to gauge the expected regulatory standards. We discuss the Stablecoin Sandbox in more detail below.
The Stablecoin Sandbox’s aims include:
supporting development of the virtual asset ecosystem in Hong Kong;
communicating supervisory expectations and guidance on compliance to parties having genuine interest in, and reasonable plans to, issue fiat-referenced stablecoins in Hong Kong, with a view to facilitating subsequent implementation of the proposed regulatory regime for stablecoin issuers;
obtaining feedback to ensure the regulatory regime is fit-for-purpose when implemented; and
developing and promoting good practice in key control areas (e.g. reserves management and stabilisation, governance, user protection etc.).
The HKMA has noted that successful admission to the Stablecoin Sandbox:
does not constitute endorsement by the HKMA as being qualified to be subject to the current or future regulation of the HKMA or other financial regulators in Hong Kong; and
does not replace the licensing process.
Stablecoin Sandbox participants will need to submit a separate licensing application in accordance with the requirements determined by the licensing authority once the regime is implemented.
The HKMA will consider various factors in evaluating applications which include demonstrating the following:
genuine interest in, and a reasonable plan on, issuing fiat-referenced stablecoins in Hong Kong;
concrete plan on participating in the Stablecoin Sandbox; and
reasonable prospect of complying with the proposed regulatory requirements.
The HKMA may adjust the Stablecoin Sandbox requirements depending on the proposals and testing progress of the participants.
The HKMA may publicly announce information on participation in the Stablecoin Sandbox.
Prior to successful admission to the Stablecoin Sandbox, potential participants should not make any announcements in relation to their application status. After successful admission to the Stablecoin Sandbox, participants in the Stablecoin Sandbox should seek agreement from the HKMA prior to making any announcements.
Interested parties should contact the HKMA via stablecoin_sandbox@hkma.gov.hk. The processing time will depend on factors such as the complexity of the proposed business model and the sufficiency and quality of information provided.
If you are interested in the Stablecoin Sandbox or stablecoins, please liaise with your usual contact at Baker McKenzie or the lawyers listed in this client alert.
1 Please refer to our earlier client alert for more detail on the consultation proposals.
