The regulation of stablecoins in Hong Kong is about to take effect, and the race for licenses has begun.

The Monetary Authority has set limits without a cap, and "JCOIN" and "JOYCOIN" have emerged.

Written by: ChandlerZ, Foresight News

Only a few days remain until the official implementation of the stablecoin licensing mechanism in Hong Kong. The Hong Kong Monetary Authority has released documents including the "Guidelines for Licensed Stablecoin Issuers," "Guidelines for Combating Money Laundering and Terrorist Financing (Applicable to Licensed Stablecoin Issuers)," "Summary of the Licensing System for Stablecoin Issuers," and "Summary of Transitional Provisions for Existing Stablecoin Issuers."

At the same time, the Monetary Authority held a technical briefing on the regulatory system for stablecoin issuers. According to the established timetable, interested applicants need to contact the regulatory body by August 31 and submit formal applications by September 30. It is expected that only a single-digit number of licenses will be issued in the first batch, with the earliest possible implementation by the end of the year.

As policies gradually take effect, the market has also seen related actions. According to reports from Ming Pao, JD's subsidiary, JD Coin Chain, has registered the names "JCOIN" and "JOYCOIN", which the market speculates are names for its stablecoins. A consensus is forming that Hong Kong will officially enter the regulatory period for stablecoins. The definition of compliance is becoming clearer, and the intentions of participating institutions are also beginning to emerge.

The number of cards dealt has not been confirmed; initial stablecoin holders must verify their identity.

In terms of the application process, the Hong Kong Monetary Authority encourages interested applicants to express their intention before August 31, 2024, and to submit formal application materials by September 30. Entering the "sandbox testing" does not automatically grant a license; non-participants can also apply, with the key being the maturity and compliance of the application plan. Regulatory requirements cover various aspects such as reserve asset management, risk control, corporate governance, issuance and redemption mechanisms, anti-money laundering, and counter-terrorism financing, and must comply with international standards such as the FATF "transfer rules."

Image source: Daily Economic News

According to the latest statement from the Hong Kong Monetary Authority, there is currently no fixed quota for the issuance of stablecoin issuer licenses. Each application will be assessed individually based on the maturity of the application materials, risk management capabilities, and business feasibility, without any quota restrictions, and participation in sandbox testing will not be a priority for approval. In addition, the Monetary Authority will not publicly disclose the list of applying institutions, emphasizing that the licensing process will remain highly prudent and non-public.

Regarding stablecoins that are pegged to currencies, the Hong Kong Monetary Authority has expressed an open attitude, supporting the pegging to a single fiat currency or a basket of fiat currencies. However, for non-fully convertible currencies like the Renminbi, a careful assessment will be made based on specific use cases and reserve mechanisms. To accommodate existing stablecoin issuers in Hong Kong, the regulatory framework also includes a "transitional arrangement," allowing qualified issuers to continue operations with a temporary license for six months.

To accommodate stablecoin issuers that have already engaged in substantive business in Hong Kong before the system comes into effect, the Monetary Authority has established a transitional arrangement. Relevant entities can submit license applications within three months after the regulations take effect. Upon confirmation of compliance capabilities, they will be permitted to continue operating under a temporary license for six months until final approval is completed.

Unlike the previous relatively lenient whitelist model, the new regulatory mechanism emphasizes strong regulation and high transparency. Licensed stablecoin issuers must implement real-name management, and the identity of holders must be verified by the issuers, regulated financial institutions, or trusted third parties. In addition, the application materials must comprehensively cover several dimensions, including reserve asset arrangements, compliance governance, anti-money laundering mechanisms, technical architecture, and risk control plans. Regulatory agencies have higher requirements for the operational capabilities of applicants.

It is worth noting that the Monetary Authority has repeatedly pointed out that the core of determining whether to grant a license is not limited to asset reserve levels, but rather depends on whether the stablecoin business model proposed by the applicant has practical application scenarios and sustainability. In this regard, the regulators maintain a "strict first, lenient later" tone, cautiously maintaining the pace of licensing in the early stages of the system to prevent market bubbles and speculative hype, emphasizing the steady promotion of the long-term sustainable development of Hong Kong's digital asset ecosystem.

On the Eve of Regulatory Effectiveness, the Regulatory Framework is Fully Clarified

From a regulatory framework perspective, the "Guidelines for Regulated Stablecoin Issuers" published by the Hong Kong Monetary Authority constitutes the core of the entire system, setting high standards and granular compliance requirements in seven key areas, including reserve asset management, issuance and redemption mechanisms, scope of business activities, financial resource requirements, risk management, corporate governance, and operational integrity. The reserve asset management section explicitly requires that stablecoins must be fully backed at 100%, and limits the types of reserve assets to highly liquid, low-risk cash management assets, such as cash, short-term bank deposits, high-rated short-term bonds, reverse repos, etc. These assets must be isolated and custodied through a trust arrangement, and the custodian must also meet minimum standards. In addition, stablecoin issuers are prohibited from paying interest to users, must prepare internal accounts daily, disclose core data externally on a weekly basis, and undergo regular reviews by independent auditors.

In terms of issuance and redemption, regulatory guidelines require stablecoin license holders or their distribution partners to strictly adhere to customer suitability management rules, prohibiting services in restricted areas. They must use technology such as identity verification and geolocation identification to mitigate compliance risks. There are also detailed disclosure requirements for redemption policies, including clearly stating users' redemption rights, operational timelines, and fees, and requiring regular reviews of the rationality and effectiveness of the issuance and redemption mechanisms themselves.

In terms of financial resources, the applicant must have a paid-in capital of no less than HKD 25 million, and the net assets must not come from external borrowing, reflecting the Monetary Authority's high regard for the sustainability and risk tolerance of stablecoin operations. If the applicant plans to issue multi-currency stablecoins, additional communication with the Monetary Authority regarding the currency composition ratio, potential mismatch risks, etc., is required.

In terms of management and governance structure, regulators clearly require that applicants must be corporate entities, and their directors, executives, and stablecoin managers must possess relevant knowledge and experience. Key personnel must be based in Hong Kong, and during the application phase, they may also need to undergo individual interviews with the Monetary Authority.

The application process outlined in the "Summary of the Issuer's System" encompasses five steps: preliminary intention communication, cross-border regulatory coordination (if applicable), data preparation, advisory committee review, and final approval, emphasizing prudence and information transparency. The document also lists a detailed checklist of application materials, including a business plan for over three years, a financial budget for the next three years, and compliance plans.

JCOIN, JOYCOIN emerge

JD.com's JD Coin Chain has registered the names "JCOIN" and "JOYCOIN", which the market speculates to be the names of its stablecoins. The registration description shows that related services include providing electronic fund transfers and cryptocurrency financial transactions through blockchain technology. JD Coin Chain is one of the participants in the Monetary Authority's stablecoin issuer sandbox program and collaborated with Tianxing Bank last July to test a corporate cross-border payment solution based on stablecoins.

JD Coin Chain Technology was registered in Hong Kong in March 2024 and became one of the first three institutions to enter the Hong Kong Monetary Authority's "Regulatory Sandbox for Stablecoin Issuers" in July. In an exclusive interview with Bloomberg Businessweek, JD Coin Chain CEO Liu Peng stated that the company plans to launch a payment-type stablecoin pegged to the Hong Kong dollar and other major fiat currencies, and aims to complete the license application, stablecoin issuance, and the simultaneous launch of a compliant trading platform in early the fourth quarter.

Unlike the asset attributes of cryptocurrencies, the JD stablecoin is positioned as a "payment tool". Its issuance is based on a public chain architecture, emphasizing transparency, auditability, and regulatory compliance. Against the backdrop of the Hong Kong "Stablecoin Regulation" officially coming into effect on August 1, JD Coin Chain relies on its parent company JD Group's full-chain resources in e-commerce, payment, and supply chain to take the lead in application testing in the retail scenario of JD's global sales in Hong Kong and Macau. In the future, it will gradually expand to cross-border trade settlement and compliant investment trading scenarios.

From a technical perspective, JD's stablecoin transfers can achieve processing speeds on the order of seconds, with costs significantly lower than traditional cross-border payment models. Preliminary tests show a remarkable advantage in cost reduction and efficiency enhancement. Furthermore, according to Liu Peng, although the current stablecoin market is dominated by USDT and USDC, compliant stablecoins that serve traditional trade and payment businesses, using Hong Kong as a hub and licensed institutions as vehicles, have the potential to open up new battlegrounds. JD Coin Chain takes compliance as its core competitive advantage and plans to collaborate with compliant financial institutions to provide on-chain payment and financing services for small and medium-sized enterprises, while promoting the improvement of capital settlement efficiency across different industries through customized scenario solutions.

Summary

As the regulatory framework for stablecoins in Hong Kong counts down, the actions of various market participants have already unfolded, and the regulatory framework is becoming increasingly complete. At a time when policies are clear and rules are being implemented, stablecoins are being separated from the narrative of cryptocurrency and moving towards real-world scenarios of payment infrastructure and trade settlement. Although the first batch of licensed institutions has not yet been announced, regulatory authorities have clearly communicated that they do not pursue quantity but focus on quality and sustainability. Those who can strike a balance between compliance, risk control, and practical applications are likely to be the first to open the true interface between on-chain finance and the real economy.