Xu Zhengyu: Will submit a draft of the virtual asset regulations to the Legislative Council within the year.

On June 24, the Secretary for Financial Services and the Treasury of Hong Kong, Christopher Hui, stated in response to questions from legislators that when formulating the regulatory framework under the "Stablecoin Regulation", the Hong Kong government has fully considered the potential risks of stablecoins to the financial system. It explicitly requires licensed stablecoin issuers to implement corresponding risk management measures, including investing reserve assets in bank deposits, high-quality and highly liquid bonds, and storing them in Hong Kong banks. If necessary, the Hong Kong Monetary Authority (HKMA) can impose additional regulatory requirements on licensed entities to ensure financial stability. After the compliant stablecoin is officially launched, the HKMA will conduct continuous and effective supervision to ensure that licensed entities comply with relevant regulatory requirements. At the same time, the HKMA will closely monitor the operations of licensed entities and continuously assess the impact of stablecoin issuance and circulation on the Hong Kong financial system. Furthermore, international organizations (such as the Bank for International Settlements) are further studying the impact of the widespread use of stablecoins on the traditional banking system. The HKMA actively participates in relevant work to ensure that risk management under the Hong Kong regulatory framework meets international standards. The HKMA has been conducting experiments with various new payment tools, including central bank digital currency networks, tokenized deposits, stablecoins, and cross-border connections for fast payment systems, with two licensed stablecoin issuers actively participating. These payment tools have their own characteristics, and their future development prospects largely depend on market demand in different application scenarios. The HKMA will continue to closely communicate with the two licensed stablecoin issuers, encouraging them to further explore synergies and connections between compliant stablecoins and other new payment tools to create value for the real economy and financial activities. Currently, the "Stablecoin Regulation" stipulates that the sale of stablecoins to the public must be conducted through a regulatory agency specified under the "Stablecoin Regulation". After the enforcement of the "Stablecoin Regulation", the HKMA has sent letters to non-regulated entities engaging in stablecoin sales, explaining the provisions and requirements of the law, and will continue to follow up in daily work to ensure that relevant institutions make improvements. Depending on the nature of individual cases, the HKMA may refer cases to the police or the Department of Justice as needed. Meanwhile, the Securities and Futures Commission (SFC) is monitoring activities suspected of engaging in unlicensed activities under the Anti-Money Laundering (AML) Ordinance (including situations where individuals actively promote their services to the Hong Kong public), and if such activities involve unregulated stablecoins, relevant information will be shared with the HKMA through existing information-sharing mechanisms for follow-up. Overall, financial regulatory agencies curb illegal or improper activities through effective market surveillance and appropriate actions to safeguard users. Financial regulatory agencies also closely cooperate with law enforcement agencies to establish notification mechanisms to ensure that illegal activities are properly handled. If overseas institutions actively promote the sale of their stablecoins to the Hong Kong public, the HKMA can seek assistance from relevant authorities in other regions through existing regulatory cooperation mechanisms. Citizens should also be aware that only purchasing regulated stablecoins through specified regulatory agencies will be protected under the "Stablecoin Regulation". If citizens purchase unregulated stablecoins through unregulated channels, they must bear the risks themselves. In addition, the Hong Kong government and the SFC will submit a bill to the Legislative Council within the year to establish a regulatory framework for institutions that provide trading, custody, advisory, and management services for virtual assets, to comprehensively regulate transactions and other activities involving virtual assets (including stablecoins) with different operating models. In terms of publicity and public education, the Hong Kong government, together with the HKMA and the SFC, has been committed to deepening public and industry understanding of the "Stablecoin Regulation", stablecoins, and other digital assets, as well as raising public awareness of fraud prevention. This includes publishing articles, press releases, social media posts, etc., to remind citizens to be vigilant against the promotion of unlicensed stablecoins and to repeatedly point out that stablecoins are not investment or speculative tools but are one of the payment tools that use blockchain technology. Due to the recent market fluctuations related to the stablecoin concept, financial regulatory agencies also urge citizens to exercise caution, analyze information thoroughly, and avoid making irrational investment decisions based solely on market speculation or price trends. Additionally, the SFC strengthens public awareness of the risks of trading in virtual assets related activities with unlicensed institutions through TV interviews, forum speeches, etc., such as the very high potential risks associated with these unregulated institutions, including lack of transparency, unstable operations, and lack of investor protection. The Hong Kong government and financial regulatory agencies will continue to strengthen relevant publicity and public education efforts, and will publish a list of licensed stablecoin issuers and other specified regulatory agencies on the websites of financial regulatory agencies to assist citizens in making informed decisions.