Introduction

In our previous newsletter, we explored the key definitions and foundational concepts of the Stablecoins Ordinance (Cap. 656) (“SCO”) (Please click here for our previous newsletter). In this newsletter, we examine the core regulatory restrictions and offences under the SCO, along with the penalties for non-compliance.  

Restrictions and offences under the SCO

1.    Offence related to carrying on “regulated stablecoin activity”

Section 8 of the SCO provides that it is unlawful for any person to carry on, or hold himself out as carrying on, a “regulated stablecoin activity” (as defined in section 5 of the SCO) without first obtaining a licence or exemption from the Hong Kong Monetary Authority (“HKMA”). Any breach of this restriction constitutes an offence which carries the following maximum penalties:

·           On summary conviction: A fine of HK$500,000 and imprisonment for 2 years, plus a daily fine of HK$10,000 for each day the offence continues.

·           On conviction on indictment: A fine of HK$5,000,000 and imprisonment for 7 years, plus a daily fine of HK$100,000 for each day the offence continues.

2.    Offence related to “offering specified stablecoin”

Under section 9 of the SCO, it is an offence to “offer a specified stablecoin” (as defined in section 6 of the SCO) or hold out as doing so, unless the person is a “permitted offeror” or is exempted by the HKMA. A “permitted offeror” includes licensed stablecoin issuers under the SCO, licensed corporations under the Securities and Futures Ordinance (Cap. 571), and banks. The maximum penalties for unauthorized offering are the same as those for carrying on unauthorized regulated stablecoin activities.

3.    Offence related to advertising regulated stablecoin activity
and advertising offering of specified stablecoin

Section 10 of the SCO creates an offence for publishing advertisements related to unauthorized regulated stablecoin activities or unauthorized offerings of specified stablecoin. The term “publish” is broadly defined under the SCO to include distributing materials via digital and social media, websites and online platforms, television and radio broadcasts, and any other form of communication. A person can be held liable even if they are publishing an advertisement on behalf of another person. The maximum penalty for this offence is a fine at level 5, currently HK$50,000, and imprisonment for 6 months.

Defences are available for certain intermediaries, such as publishers and broadcasters, if they act in the ordinary course of their business, passively disseminate content without creating, modifying, or controlling it, and have taken all reasonable steps to avoid committing the offence.

4.    Offence involving fraud and deception in relation to
specified stablecoin transaction

Section 11 of the SCO prohibits fraudulent or deceptive conduct in any transaction involving a specified stablecoin. This includes employing any device, scheme, or trick with an intention to defraud or deceive, or engaging in any fraudulent or deceptive act or practice. The maximum penalties for this offence are as follows:

·           On summary conviction: A fine of HK$1,000,000 and imprisonment for 3 years.

·           On conviction on indictment: A fine of HK$10,000,000 and imprisonment for 10 years.

Beyond fines and imprisonment, the court may issue an order prohibiting the convicted person from engaging in any specified stablecoin transaction in Hong Kong for up to 5 years without the court’s leave.

5.    Offence for inducing others to enter into
agreement involving specified stablecoin

Under section 12 of the SCO, it is an offence to induce another person to enter into an agreement involving a specified stablecoin through fraudulent or reckless misrepresentations. Such misrepresentation cover false statements, promises made without intention to fulfil, unjustified forecasts, and deliberate omission of material facts that would otherwise make statements misleading or false, or recklessly making any of the above. The following are the maximum penalties for this offence:

·           On summary conviction: A fine at level 6, currently HK$100,000, and imprisonment for 6 months.

·           On conviction on indictment: A fine of HK$1,000,000 and imprisonment for 7 years.

Conclusion

The offences set out in the SCO created a robust enforcement framework with substantial penalties. Entities and individuals conducting stablecoin activities must ensure full compliance with the SCO requirements. Given the severe legal consequences of non-compliance, it is advisable to seek professional advice to ensure comprehensive compliance with all SCO obligations before engaging in any stablecoin activities.