Hong Kong leads stablecoin frontier; Shanghai regulator explores options

With its upcoming legislation and a joint initiative with South Korea, Hong Kong is taking the lead as a stablecoin ‘regulatory frontier’ — while Shanghai continues to explore its own approach, according to Compliance Corylatedʼs global crypto tracker.

Despite the Chinese State Council’s ban on crypto since 2021, Shanghaiʼs State-owned Assets Supervision and Administration Commission (SASAC) held a meeting with local officials on July 10 to discuss stablecoins and digital currencies strategies.

According to its WeChat post, the Shanghai regulator “analysed global regulatory frameworks and strategic approaches” and initiated conversations with experts on opportunities, challenges and policy suggestions for the digital assets sector.

The move comes after Chinese tech giants JD.com and Ant Group reportedly turned to stablecoin licences in Hong Kong, according to Reuters. Hong Kong’s stablecoin legislation is set to take effect on August 1.

Under the upcoming regime, any entity issuing or marketing a fiat-referenced stablecoin (FRS) in Hong Kong, or referencing the Hong Kong dollar, must be licensed by the Hong Kong Monetary Authority (HKMA).

While the regulation covers mainstream FRS such as USDT and USDC, the HKMA noted that it will only license companies incorporated in Hong Kong, unless the applicant is a Hong Kong-licensed bank.

Trip to South Korea

The HKMA is also looking to expand its regime abroad. Following a three-day visit, Hong Kong financial secretary Paul Chan Mo-po announced a partnership between Hong Kong and South Korea on stablecoin regulations.

The collaboration aims to establish a cross-border regulatory framework to form a “stable and secure” environment for digital assets, supporting cross-market financial flows among stablecoin projects.

South Korea’s current ruling party previously proposed legislation on stablecoins, the Digital Asset Basic Act, which aligned with President Lee Jae-myungʼs pledge to “legalise and promote” the crypto sector.

While the Digital Asset Basic Act requires stablecoin reserves to be kept separate and protected under “bankruptcy remoteness” rules, it also reduces the minimum equity capital requirement, lowering the entry barrier into the digital assets market.

UK: tokenised deposits?

Meanwhile, the UK regulator is turning to tokenised deposits (digital representations of traditional bank deposits) as an alternative option.

In an interview with The Times on July 14, Bank of England (BoE) governor Andrew Bailey said: “I would much rather [banks] go down the tokenised deposit streets and say, how do we digitise our money, particularly in payment.

“Stablecoins are proposed to have the characteristics of money. That money is a medium of exchange. We are going to have to look at it very closely through that lens. It’s both a financial stability issue and a money issue in that sense.”

According to Peter Left, head of digital and markets innovation at Lloyds Banking Group, there are no regulatory obstacles to delivering, issuing or operating tokenised deposits in the UK. Most jurisdictions recognise tokenised deposits as cash equivalents, in terms of singleness and elasticity, he told the latest UK Finance Digital Innovation Summit.