Stablecoin Issuer Sandbox


12 Mar 2024

Stablecoin Issuer Sandbox

  1. When the Financial Services and the Treasury Bureau (FSTB) and the HKMA jointly issued a public consultation paper on the legislative proposal to regulate issuers of stablecoin in December last year, it was also announced that the HKMA would introduce a sandbox arrangement for stablecoin issuers. The consultation ended on 29 February with over 100 responses received.  The FSTB and the HKMA are studying the responses, and seek to publish the consultation conclusion as soon as practicable.  Today the HKMA announced the launch of the sandbox.

Concept of sandbox

  1. “Sandbox” is a term that has gained traction in financial regulation, in particular in the fintech space. A sandbox is a box filled with sand that allows children to play and unleash their creativity within a confined space and under a safe environment.  Put in the context of fintech, a sandbox is an arrangement under which regulatory authorities allow financial institutions to test out their new services and products, as well as to gather data and user feedback in a risk-controlled and limited scope environment.  The aim is to expedite the launch of services and products while ensuring compliance with regulatory requirements.  The HKMA has introduced the “Fintech Supervisory Sandbox”, and with the useful experience gained, linked it up with other similar fintech facilities run by the regulatory authorities in the Mainland and Macau to promote cross-boundary fintech developments.  Our latest effort is the wholesale central bank digital currency (wCBDC) sandbox that was unveiled last week.
  2. The HKMA’s stablecoin issuer sandbox is based on a similar concept. It enables the HKMA to communicate supervisory expectations and guidance to institutions that plan to issue fiat-referenced stablecoins in Hong Kong.  It also provides a means for us to obtain feedback from sandbox participants on the proposed regulatory requirements, so that the design of the regime will be fit-for-purpose.  For the sandbox participants, they can test out the feasibility of their intended business models and communicate with the HKMA directly to understand how to comply with the future regulatory requirements.

Eligibility for accessing the sandbox

  1. We have not set a limit on the number of sandbox participants to be admitted. In view of the nature of stablecoins and the proposed regulatory requirements, we have developed specific requirements for acceptance into the sandbox, including the need for applicants to demonstrate that they have (1) a genuine interest in and a reasonable plan on issuing fiat-referenced stablecoins in Hong Kong; (2) a concrete plan for participation in the sandbox; and (3) a reasonable prospect of complying with the proposed regulatory requirements.  When assessing an application, the HKMA will take into account a range of factors such as the proposed use case, stabilisation mechanism, management of reserve assets, user protection, etc.  In the process we will maintain communication with the applicants.

Testing in the sandbox

  1. The testing in the sandbox will be conducted within a limited scope and risk-controlled environment. For example, there will be restrictions on the number of users and the size of stablecoin issuance, and the testing will not involve the handling of customers’ or the general public’s funds at the initial stage.  Depending on the participants’ proposals and the progress of testing, the HKMA may fine-tune the operation parameters and testing scope as appropriate.  Through the sandbox process, we expect participants to demonstrate the feasibility of their stablecoin issuance processes, robustness of their internal control systems for managing risks associated with the key aspects of operation including money laundering risks, as well as the adoption of appropriate measures to protect user interests.  Based on the experiences and feedback gathered from the testing process, the HKMA will develop some good practices for various operational aspects to enhance supervisory efficiency and effectiveness.
  2. Participants are expected to comply with the terms and conditions of the sandbox. In case of any non-compliance, the HKMA may terminate the participation.  We should emphasise that successful admission as a sandbox participant does not imply that the institution is in any sense endorsed or regulated by the HKMA or other financial regulators.  Sandbox participants who intend to apply for a licence in future will need to submit a separate application to the HKMA under the regulatory regime to be implemented.

Staying alert to virtual asset scams

  1. Meanwhile, we note with caution the increasing trend of scams involving virtual assets in recent years. To avoid situations where scammers deceive members of the public under false cover as sandbox applicants or participants, applicants should not disclose their application status before being admitted to the sandbox.  As for those who have been admitted to the sandbox, they should seek the HKMA’s agreement before making any public announcements.  To keep the public informed of the latest participation in the sandbox, the HKMA will publish a list of sandbox participants on its website with timely updates.  In case of any suspected false or misleading announcements, the HKMA may refer such to law enforcement agencies for follow-up and will keep the public informed through various channels.
  2. The rapid growth of the virtual asset market has seen a steady stream of new products, many of which offering promising high yields at low risks. A word of caution: as virtual assets are relatively high-risk products, it would be advisable for a potential investor to consider his own risk appetite, study carefully the nature and risks of the virtual assets in question, and exercise caution when making investment decisions.  The public should also stay alert to fraudulent advertisements on social media platforms (especially investment tips from the so-called ‘experts’) and refrain from installing apps from unknown sources.
  3. The Government and the financial regulators encourage financial innovation by providing a robust and transparent regulatory environment. Following the recent implementation of the licensing regime for virtual asset service providers, public consultations have been conducted for the legislative proposals to regulate stablecoin issuers and providers of over-the-counter trading services of virtual assets.  We will carefully consider the feedback and suggestions received in implementing these regulatory regimes, with a view to supporting the robust and sustainable development of the virtual asset ecosystem in Hong Kong.


Darryl Chan
Deputy Chief Executive
Hong Kong Monetary Authority

12 March 2024

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Last revision date : 12 March 2024