Hong Kong-based stablecoin issuers should obtain a license in order to operate in the city and cater to retail investors.

That's according to a consultation paper from the Hong Kong Monetary Authority (HKMA), the city’s central bank, and the Financial Services and the Treasury Bureau (FSTB).

The regulators intend to grant licenses to issuers if the stablecoin "references the value of one or more fiat currencies in Hong Kong."

Also, the licensee must be locally incorporated. The HKMA says that the licensee should maintain a pool of high-quality and highly liquid reserve assets with proper custody arrangement.

The authorities will gather public feedback on this legislative proposal until Feb. 29, 2024.

The HKMA also looks to launch a sandbox agreement along with public consultation for creating channels to exchange views between the HKMA and market players who are looking to establish a stablecoin issuance business in Hong Kong.

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Authorities maintain that they should be given the required powers for intervening in the operations of a licensee if such a situation of default or failure is created.

“The virtual asset market is still far from maturity and will likely continue to evolve, notwithstanding the multiple cycles it has been through in the past few years," HKMA chief executive Eddie Yue said. "With that, stablecoins could become the interface between traditional finance and the virtual asset market.”

Last week, the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) issued a circular that it is ready to accept spot crypto ETF applications.

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