Introduction
Recently, Hong Kong’s increasing fund and stock trading volumes have highlighted the importance of leveraging the opportunities presented by stablecoins to enhance its financial ecosystem and global competitiveness. We expect that combinations of traditional banks and technology companies can more easily demonstrate viable use cases and navigate capital requirements and the investments needed in infrastructure and controls. As the Hong Kong Monetary Authority (HKMA) itself stated: “It is envisaged that only a handful of licences will be granted initially.” Start-ups and pure technology companies should carefully consider whether they can meet the regulatory expectations. In this client alert, we discuss the latest Stablecoins Ordinance.
Following our January 2025 update, Hong Kong’s Legislative Council has passed the Stablecoins Bill (the Bill), setting in motion a comprehensive regulatory framework for stablecoin issuers. As enacted, the Stablecoins Ordinance, which will take effect on 1 August 2025, introduces a licensing regime for fiat-referenced stablecoin (FRS) issuers and reflects several notable amendments during the legislative process.
In addition, the HKMA published two key consultation documents on 26 May 2025, providing further details on the framework and regulatory expectations:
Consultation on both papers closed on 30 June 2025. We expect that conclusions, followed by supervisory guidelines, will be issued soon.
Key amendments to the Bill
1. Inclusion of SVF licensees as “permitted offerors”
Initially, stored value facility (SVF) licensees under the Payment Systems and Stored Value Facilities Ordinance (Cap. 584) (PSSVFO) were not included as permitted offerors. They have now been added, and the scope of permitted offerors is now expanded to five types of entities:
(a) Licensees under the new regime
(b) Virtual asset trading platform operators licensed by the Securities and Futures Commission (SFC) under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615)
(c) Corporations licensed by the SFC for Type 1 regulated activity (dealing in securities) under the Securities and Futures Ordinance (Cap. 571)
(d) Authorized institutions under the Banking Ordinance (Cap. 155) (i.e., banks, restricted licence banks, or deposit-taking companies)
(e) SVF licensees under the PSSVFO, subject to prior approval from the HKMA
2. Retail investor access
There used to be ambiguity regarding the offering of stablecoins issued by non-HKMA licensed entities. In the legislative process, it was clarified that only FRS issued by HKMA-licensed issuers can be offered to retail investors. FRS issued by non-HKMA-licensed entities can only be offered to professional investors.
3. Enhanced powers for the Stablecoin Review Tribunal
The Bill establishes the Stablecoin Review Tribunal as an appeal body and prescribes a list of decisions subject to review by the tribunal, covering licensing decisions, sanctions and enforcement steps, and compliance affairs. The tribunal is given express authority to confirm, vary, or overturn HKMA decisions.
Consultation Draft Guideline on Supervision of Licensed Stablecoin Issuers
The guideline details the operational, financial, and governance standards that licensees will be expected to meet. Key proposals include:
- Prudential standards and reserve asset management: Issuers must maintain full backing of all outstanding stablecoins with high-quality, highly liquid reserve assets. The reserve assets pool must match the referenced currency. These reserves must be segregated from the issuer’s own assets, safeguarded under trust arrangements, and subject to regular reconciliation and independent audits. Issuers must also ensure that the composition and valuation of reserves are transparent, with frequent public disclosures and prompt reporting of any discrepancies or breaches to the HKMA.
- Issuance, redemption, and distribution controls: Issuers are only permitted to issue stablecoins upon receipt of matching fiat funds. Redemption rights for holders must be clear, enforceable, and honoured at par value within one business day, with no unreasonable fees or burdensome conditions. Where third parties are involved in distribution or secondary market liquidity, issuers must conduct robust due diligence and ensure that these arrangements do not undermine prudent operations or regulatory compliance.
- Financial resources and risk management: Stablecoin issuers must maintain a minimum paid-up share capital of HK$25 million, with the HKMA reserving the right to require higher thresholds based on risk. The guideline mandates comprehensive risk management frameworks, covering credit, liquidity, market, technology, operational, and reputational risks. Issuers are expected to implement robust governance structures, conduct regular stress testing, and maintain clear lines of responsibility for risk oversight and internal controls.
- Corporate governance and business conduct: The guideline sets out stringent “fit and proper” requirements for controllers, directors, and key personnel, with HKMA approval required for appointments. Issuers must establish strong internal controls, maintain secure information and accounting systems, and ensure transparent disclosure of key policies and procedures to the public. There are also specific requirements for handling complaints, protecting personal data, and ensuring that all business activities are conducted with integrity and in compliance with applicable laws.
Consultation Paper on the Proposed AML/CFT Requirements for Regulated Stablecoin Activities
The separate consultation on anti-money laundering and countering the financing of terrorism (AML/CFT) requirements proposes that licensed stablecoin issuers be treated as “financial institutions” under Hong Kong’s AML/CFT regime, with obligations aligned to international standards and the guidance of the Financial Action Task Force. Key elements include:
- Risk-based approach: Issuers must conduct institutional ML/TF risk assessments, maintain strong governance and internal audit arrangements, and ensure staff are adequately trained.
- Customer due diligence (CDD): CDD is required for all issuance and redemption transactions at or above HK$8,000, and for all ongoing business relationships. Issuers must identify whether customer wallets are custodial or unhosted, and apply enhanced due diligence and monitoring for transactions involving unhosted wallets.
- Ongoing monitoring and transaction screening: Licensees are expected to deploy technological solutions (such as blockchain analytics) to monitor transaction flows, screen wallet addresses, and identify suspicious or sanctioned activity. Special attention is required for transfers to and from unhosted wallets and for secondary market activity.
- Travel rule compliance: Stablecoin issuers must comply with the “travel rule” for virtual asset transfers, ensuring the transmission of required originator and beneficiary information.
- Secondary market oversight: The HKMA expects licensees to implement proportionate monitoring and controls to prevent misuse of stablecoins in secondary markets, including potential measures such as blacklisting illicit wallet addresses and confining distribution to regulated intermediaries.
- Future guidance: The HKMA is developing supplementary AML/CFT guidance for other digital asset activities (for example, custodial services) and will consult further with the financial sector later in 2025.
The Future
For issuers: Stablecoin issuers are incentivised to issue stablecoins as they can earn interest by investing the reserve assets that back these tokens, as stablecoin holders do not receive any interest on their holdings. Instead, the yield generated from the underlying reserves accrues to the issuer. For example, Tether (USDT) and Circle (USDC) both invest the fiat reserves backing their stablecoins in short-term government securities and other low-risk instruments, generating substantial interest income. This business model has become a significant source of revenue for leading stablecoin issuers, further fuelling the growth and adoption of stablecoins in global markets.
For businesses: By leveraging blockchain networks, stablecoins cut out correspondent banking and SWIFT messaging fees, significantly lowering transaction costs. They also enable near real-time value transfer across borders 24/7 without intermediaries. For example, a business in Hong Kong can settle invoices with European partners via U.S. dollar-pegged stablecoins instantly, without conversion. The latest regulatory framework is now also highly favourable for the introduction of offshore yuan-pegged stablecoins – opening exciting opportunities for greater financial innovation and cross-border connectivity.
For traders: Integrating stablecoins into the market infrastructure could streamline settlement, boost liquidity, and reduce transaction costs – particularly for cross-border and after-hours trades. For example, this could pave the way for stock exchanges to partner with licensed stablecoin issuers to enable stablecoin-based settlement or support tokenised securities, which could deliver efficiency and transparency and boost Hong Kong’s competitiveness as an international financial centre.
Regulated stablecoins are poised to be a global game changer in the coming years, offering the potential to boost funds mobility and increase participation and trading activity in digital asset markets. Globally, the pace of regulatory changes have increased and for a recent insight on the US regulatory framework, please see our alert on CLARITY Act. As these innovations reshape the financial landscape, market participants are encouraged to proactively review their businesses and prepare to seize the new opportunities ahead. Our team is happy to assist you in navigating the changing regulatory landscape.
Client Alert 2025-193
