Sina Finance interviews Hong Kong stablecoin review tribunal's Lyu Zhihong

Author: Sina Finance

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At the juncture of the digital asset industry moving from reckless growth to compliant development, Hong Kong's forward-looking regulatory framework accelerates the improvement of regulatory norms in the digital asset industry. Since the Hong Kong “Stablecoin Ordinance” officially came into effect on August 1, three months have passed, and the Monetary Authority has received license applications from 37 institutions but has not issued any licenses. On October 31, Hong Kong announced the establishment of the Stablecoin Review Tribunal. What is the “Review Tribunal”? What role does it play in the stablecoin license issuance process? Has the stablecoin license entered the “review” period?

Sina Finance directly dialogues with members of the Hong Kong Stable Coin Review Tribunal and the Web3 Development Group, including Deloitte China's Hong Kong Partner in charge of Digital Assets, Lyu Zhihong, to deconstruct the regulatory logic and ecological construction of Hong Kong's digital asset industry.

Sina Finance: The Hong Kong Stablecoin Review Tribunal was just established in October, and everyone is curious about this new organization. What kind of group is it? What are its core functions? What responsibilities do you have within it?

Lu Zhihong: The establishment of the Stablecoin Review Tribunal in Hong Kong is based on the introduction of the Stablecoin Ordinance in May this year, which officially came into effect on August 1 after being passed by the Legislative Council. Institutions intending to issue stablecoins must apply for a license from the Hong Kong Monetary Authority. If an applicant fails to obtain a license successfully, or disagrees with the review results and believes they meet the relevant requirements, they can submit their case to the Stablecoin Review Tribunal, where we will conduct a re-examination of the case.

The members of the Hong Kong Stablecoin Review Tribunal include professionals from various fields such as digital assets, stablecoins, law, accounting, and academia, with the aim of examining each case from a fair and just perspective, making the entire application and review process open and transparent, and enhancing market confidence in the Hong Kong stablecoin regulatory system. My responsibility is to participate in the review of individual cases along with other members, combining our industry practices and reliable professional data, such as issuing specialized reports, to verify whether the applicant meets the asset requirement of 25 million Hong Kong dollars, whether the purpose of the funds held meets the requirements of high liquidity and low risk, etc., to ensure the reasonableness and fairness of the review results.

Sina Finance: Many people are puzzled about what the definition of “review” is? Why has the review tribunal been established when the licenses have not yet been issued? Has the application for the stablecoin license entered the “review” stage?

Lv Zhihong: “Review” is essentially a safeguard procedure for the applicant and is part of the establishment and improvement of the regulatory framework.

Currently, there are less than 40 institutions applying for stablecoin licenses. These applicants may fail to obtain approval during the review process due to not meeting regulatory requirements. At this point, they can apply for a review, and we can provide assistance in consultations, verifications, and other aspects to reassess the individual case.

The establishment of the Review Tribunal is a forward-looking preparation by the Hong Kong government agency. This means that before the issuance of licenses, the entire regulatory mechanism is improved in advance, allowing applicants to clearly see the integrity of the process and understand how to follow clear guidelines during the application process. This also aligns with the philosophy in the regulatory field of the Hong Kong financial sector of 'establishing rules before development.' For example, financial products such as MPF and insurance that are already available in Hong Kong have corresponding review bodies, with the core aim of enhancing fairness and transparency in the industry.

Sina Finance: During the review process, what information or data does the applicant need to provide? As an industry veteran, what qualifications of the applicant will you focus on?

Lü Zhihong: The application for work has just started, and the specific materials that need to be provided may vary depending on the individual case. However, the core logic is to allow regulatory agencies to fully understand the applicant's operating model, compliance capabilities, and risk control levels.

In general, applicants in the review stage typically supplement more information based on the guidelines of regulatory requirements. For example, whether financial resources and liquid assets meet the minimum requirement of 25 million HKD, whether the reserve assets are of high quality and high liquidity, and constitute a portfolio of assets with minimum investment risk, whether the issuer can respond quickly and promptly when stablecoin holders wish to redeem their assets, etc. The purpose is to facilitate regulatory agencies to comprehensively assess whether the applicant meets the issuance requirements, redemption requirements, distribution requirements, and so on.

From industry experience, whether it is a stablecoin license or the previous application for virtual asset licenses, regulatory requirements have been clearly stated in the relevant regulations, and applicants must strictly follow the framework requirements to prepare the materials. For me, the core issue is whether the applicant fully meets the regulatory requirements, which is the foundation for ensuring the normative development of the industry.

Sina Finance: I understand that you are not only a member of the Hong Kong Stablecoin Review Tribunal but also a member of the Hong Kong Web3 Development Group. What is your core work in these two groups?

Lü Zhihong: I mainly work on digital asset-related tasks at Deloitte, and I also participate in the work of two important committees in Hong Kong. One is the Hong Kong government's Web3 Development Committee, which focuses on promoting the orderly development of the Web3 industry and finding a balance between innovation and regulation; the other is the Stablecoin Review Tribunal, which primarily handles review cases related to stablecoin license applications, allowing the industry and the market to have a clearer and more transparent understanding of the application process and review standards, ensuring fairness and transparency in the development of the industry.

Sina Finance: There are voices in the market suggesting that stablecoins may not be “stable” after all, and there have been frequent “de-pegging” incidents recently. How do you view the “insecurity” attribute of stablecoins? How does Hong Kong's regulatory framework prevent such risks?

Lü Zhihong: The “stability” of stablecoins is fundamentally derived from strict regulatory constraints on their issuance mechanisms.

The regulatory requirements in Hong Kong clearly state that compliant stablecoins must be backed by fiat currency, categorized as “fiat-collateralized stablecoins.” There are also key regulatory requirements, such as the ones I mentioned earlier: first, applicants must have a capital threshold of 25 million HKD; second, issuers must invest the raised fiat funds into high liquidity, low-risk assets; third, a clear redemption mechanism must be established, allowing holders to exchange stablecoins back to fiat within a short period. Deloitte, as the auditing firm, will also verify through professional reports whether the assets held by the issuer meet the low-risk requirements.

Of course, stablecoins may face potential risks related to asset allocation, network security, and smart contracts, but Hong Kong's regulatory framework has been standardized throughout the entire process of access, operation, and exit, minimizing risks to the greatest extent. The core objective is to ensure the asset safety of stablecoin holders. It is important to emphasize that the price of stablecoins is relatively stable, making them more of a payment tool rather than an investment product, and the core of regulation is also focused on ensuring the “holding safety” of stablecoin holders.

Sina Finance: Hong Kong's entry requirements for stablecoin issuers are not low. What are the unique characteristics and advantages of Hong Kong's regulatory standards when viewed globally?

Lv Zhihong: Hong Kong's advantage lies in its “single regulatory framework” which can be improved and coordinated.

Firstly, a single regulatory authority has been clearly defined: the Hong Kong Monetary Authority is responsible for the stablecoin license, while the Securities and Futures Commission of Hong Kong is responsible for the virtual asset platform license. Each will fulfill its professional functions while maintaining coordination at the policy level. Secondly, regulatory support continues to improve. In June, Hong Kong completed consultations on regulations related to virtual asset custody and over-the-counter trading, which will gradually be implemented to form a regulatory system covering the entire digital asset industry chain.

Hong Kong's regulation encourages innovation based on norms. A sound regulatory framework can attract high-quality institutions from around the world, while Hong Kong, as an international financial center, has a mature financial infrastructure, capital circulation mechanisms, and a foundation of traditional financial markets, which can promote the deep integration of digital assets with traditional financial products, achieving synergistic development both on-chain and off-chain. This combination advantage of “norms + innovation + financial infrastructure” is the core competitiveness of Hong Kong in building an international digital asset center.

Sina Finance: As you mentioned, Hong Kong has assigned the regulation of stablecoins to the Monetary Authority and the regulation of virtual assets to the Securities and Futures Commission. However, stablecoins are part of digital assets. What is the logic behind this division of responsibilities?

Lv Zhihong: This division of labor is mainly based on the core attribute differences of assets. The traditional regulatory areas of the CSRC include virtual asset trading platforms, asset tokenization (RWA), etc. These types of assets are more inclined towards investment attributes, which is consistent with the regulatory logic of public fundraising activities such as IPOs that the CSRC was previously responsible for.

The core attribute of stablecoins is payment, and in the long run, they will also support functions such as cross-border payments. This aligns closely with the Monetary Authority's functions in regulating payment systems and financial infrastructure, thus it is responsible for the issuance and regulation of their licenses. Although stablecoins and virtual assets both belong to the digital asset ecosystem, precise regulation based on different core attributes can make regulation more professional and efficient, ultimately better promoting the healthy development of the entire ecosystem.

Sina Finance: Hong Kong has released the “Digital Asset Development Declaration 2.0”. Compared to the previous “Virtual Asset Development Declaration 1.0”, the term “virtual assets” has officially been renamed to “digital assets”. What is the significance behind this renaming? What are your views on the future of Hong Kong's digital asset industry?

Lv Zhihong: The initial use of the term “virtual assets” was mainly because the early market was dominated by cryptocurrency assets like Bitcoin and Ethereum, which lack physical asset support, making it easier for everyone to understand. However, with the development of the industry, Hong Kong's digital asset ecosystem has gradually expanded, including not only traditional crypto assets but also stablecoins backed by fiat currency and asset tokenization products (RWA) backed by physical assets. These assets are no longer purely characterized as “virtual”; rather, they are a collective term for various assets that exist in digital form. Therefore, renaming them as “digital assets” can more accurately and comprehensively cover the new forms of industry development and reflect the breadth of Hong Kong's digital asset ecosystem.

Looking to the future, Hong Kong's core direction is to promote the deep integration of digital assets with traditional finance. Leveraging its mature infrastructure as an international financial center and the advantages of capital circulation, Hong Kong may be able to break down barriers between on-chain and off-chain, as well as between digital and traditional assets, allowing digital assets to become an important vehicle for financial innovation. With the continuous improvement of regulatory support, Hong Kong is expected to become a benchmark in the global digital asset space, ensuring industry standards are orderly while also stimulating innovative vitality, ultimately consolidating and enhancing its status as an international financial center.