Hong Kong Tightens Regulations on Stablecoins to Combat Financial Crime
The Hong Kong Monetary Authority (HKMA) has published new guidelines this Tuesday (29th) focusing on the regulation of stablecoins within the region. A key aspect of these regulations mandates that companies issuing stablecoins must identify their customers.
This measure is primarily aimed at mitigating risks associated with money laundering, terrorist financing, and other illicit activities.
While the directives are set to take effect this Friday (September 1st), no stablecoin issuer currently holds a license to operate in Hong Kong. The first licenses are anticipated to be approved in 2026.
New Regulatory Regime for Stablecoins in Hong Kong
Stablecoin issuers already face customer identification obligations in various countries, including Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. These principles will now be implemented in Hong Kong.
“[…] the identity of each individual stablecoin holder must be verified: (i) by the licensee itself, even if the holder does not have a client relationship with it; (ii) by a duly supervised financial institution (FI) or virtual asset service provider (VASP); or (iii) by a trusted third party.”
The 48-page document emphasizes the terms “identify” and “identity” over 100 times, highlighting the HKMA’s concern regarding this aspect.
However, the regulations are not expected to directly impact end-users utilizing self-custody wallets, although these transactions will be subject to monitoring.
“For the avoidance of doubt, a licensee is not required to observe paragraphs 6.40 to 6.41 [collection of user data] in peer-to-peer transfers of stablecoins between unhosted wallets of stablecoin holders who are not clients”, the text states. “However, the licensee must conduct adequate ongoing monitoring of stablecoins in circulation, following the guidance in paragraphs 5.9 to 5.12.”
Stablecoins Continue to Gain Market Share
Data indicates that the stablecoin market is valued at US$ 274 billion. Regulatory clarity in the United States and other countries contributes to this growth.
The market is currently dominated by Tether (USDT), with US$ 163.7 billion, followed by Circle’s USDC with US$ 63.7 billion. Other notable players include Ethena USDe and DAI, which focus on more decentralized solutions.
Stablecoins also play a significant role in trading. For instance, Tether’s trading volume in the last 24 hours exceeds the combined volumes of Bitcoin and Ethereum during the same period.
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