The largest virtual bank in Hong Kong, ZA Bank, broke new ground earlier today by offering exclusive reserve bank services to stablecoin issuers, a move in line with Hong Kong’s recent regulatory advancements in cryptocurrency.

This initiative is part of the territory’s new stablecoin licensing regime, which requires crypto stablecoin operators to deposit reserve assets with local banks.

Notably, this rule appears to “strengthen the stability” and “security” of cryptocurrency in the region. It also reflects a general trend that fintech innovation continues to be interwoven with more traditional financial regulation.

First Crypto Stablecoin Issuer Already Active

According to the report, Yuancoin has become one of those actively participating in its partnership project with ZA Bank, which is in the list of sandbox projects recently updated by the Hong Kong Monetary Authority (HKMA).

As the first stablecoin issuer to take advantage of ZA Bank’s newly- introduced reserve banking services, this partnership symbolizes a key step towards “enhancing innovation and stability” in digital assets.

Yao Wensong, CEO of ZA Bank, announced the significance these banking services would have for stablecoin issuers, noting that they blend traditional banking concepts with modern fintech innovation.

He also added that working alongside Yuancoin is one more step towards true innovation growth and increases emphasis on the stability of digital assets. In his words:

The digital bank that provides banking services for stable coin issuers has successfully combined traditional banking with financial technology innovation. The company’s cooperation with the currency symbolizes a common commitment to promoting innovation and enhancing the stability of digital assets.

Furthermore, the report reveals that ZA Bank has disclosed that it is discussing with around ten other stablecoin issuers.

The bank is also said to have supported the HKMA’s regulatory frameworks and expects these initiatives to develop well within a controlled test environment. The report noted:

The company fully supports the policies of the Financial Management Bureau and is glad that the relevant development has entered the sandbox stage. By providing safe and reliable banking infrastructure, it will bring safer protection to users and further strengthen the confidence of all parties in the stable currency market.

What is the Hong Kong ‘Sandbox’ Initiative?

The Hong Kong Sandbox is an initiative that provides a warm-up exercise to stablecoin issuers before broader regulations become a reality as the government pushes forward to establish itself as one of the key cryptocurrency centers in the region.

Explaining this initiative, Eddie Yue, chief executive of the HKMA, recently noted:

The sandbox arrangement serves as an effective channel for the HKMA and the industry to exchange views on the proposed regulatory regime, and will facilitate the formulation of fit-for-purpose and risk-based regulatory requirements, which is key to promoting the sustainable and responsible development of the stablecoin issuance business.