Introduction
In our previous updates, we closely followed the legislative process of the Stablecoins Ordinance, which took effect on 1 August 2025. The Hong Kong Monetary Authority (HKMA) has also formally published an Explanatory Note on Licensing of Stablecoin Issuers (Licensing Note), Guideline on Supervision of Licensed Stablecoin Issuers (Supervision Guideline), and Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Stablecoin Issuers) (AML Guideline), providing clarity to the licensing process and regulatory expectations.
In recent weeks, the new regime has sparked significant market excitement and a surge in stablecoin-related stocks. Rather than delving into the regulatory requirements – covered in our earlier updates – this update provides FAQs for entities considering a licence application.
Q1: Who is eligible?
A: Applicants must be either (i) a Hong Kong-incorporated company, or (ii) an authorised institution incorporated outside Hong Kong (such as an overseas bank holding a valid banking licence in Hong Kong). Overseas non-bank institutions should establish a local subsidiary to apply for a licence. For non-bank applicants, stablecoin issuers must maintain a minimum paid-up share capital of HK$25 million.
Q2: Are there local office presence requirements?
A: Yes. A principal place of business in Hong Kong is required and must be stated in the application.
Q3: What are the senior staffing requirements?
A: The Stablecoins Ordinance requires that the applicant’s chief executive, director, stablecoin manager, and controller must be fit and proper persons. The HKMA expects that at least one-third of the board members should be independent non-executive directors. In general, the HKMA expects senior management and key personnel to be based in Hong Kong. Senior management is also expected to appoint a Compliance Officer at the management level to take overall responsibility for the establishment and maintenance of its AML and Counter-Financing of Terrorism (CFT) systems, and a Money Laundering Reporting Officer to act as the central reference point for suspicious transaction reporting and as the main point of contact with the Joint Financial Intelligence Unit and law enforcement agencies.
Q4: Can licensees engage third-party custodial services for holders of their stablecoins?
A: The HKMA allows licensees to either directly provide custodial services to holders of their stablecoins or to use wallets offered by custodial wallet providers, which may be financial institutions or licensed virtual asset service providers. Measures should be put in place to manage AML/CFT risks associated with custodial wallets. The Securities and Futures Commission (SFC) and the Financial Services and the Treasury Bureau are conducting a public consultation on a new regulatory regime for virtual asset custodian services. Watch this space for upcoming developments regarding third-party custodians.
Q5: Who are the qualified custodians for the safekeeping of reserve assets?
A: A custodian for the safekeeping of reserve assets, which must be segregated from the licensee’s assets under a written trust arrangement, should be a licensed bank or another asset custodian under an arrangement acceptable to the HKMA. If investment managers are engaged to manage reserve assets, the licensee should ensure such investment managers are qualified for the role. Appropriate risk assessments and due diligence must be conducted.
Q6: Who can distribute the issued stablecoins?
A: Only “permitted offerors” may distribute or offer specified stablecoins. They are:
- Stablecoin issuer licence holders;
- Authorised institutions (such as banks holding a valid banking licence in Hong Kong);
- Licensed stored-value facility providers;
- SFC-licensed virtual asset trading platforms; and
- SFC-licensed corporations for Type 1 activities.
Q7: What is the application process? Is there an application form?
A: The HKMA requires any entity interested in applying for a licence to first indicate its interest to the HKMA Licensing Team before making a formal application. The HKMA will then engage with the potential applicant to gain a better understanding of the person’s background and business model, and to ensure the applicant is fully aware of the licensing procedures and the HKMA’s expectations regarding the minimum criteria before making a formal application. The HKMA has not published the application form to the public; it is only obtainable from the Licensing Team. However, the HKMA has set out a list of documents (23 items) required when submitting an application. See Annex B to the Licensing Note.
Q8: How long will the application take?
A: The HKMA has indicated that licensing “will be an ongoing process” without an express commitment on the processing time of an application. As an indication, there are three aspiring applicants who have been in the HKMA sandbox since mid-2024.
Q9: How many licences will be issued?
A: The HKMA has reported receiving 77 expressions of interest for stablecoin licences as of 31 August 2025. However, it has repeatedly emphasised that “only a handful of licences will be granted initially”. The HKMA is adopting a rigorous and prudent approach to the process and has warned that “the approval thresholds are set high”. In light of the recent abrupt market movements linked to the stablecoin concept, the SFC and HKMA published a joint statement reiterating the high bar for applications and warned investors against unjustified excitement or speculation.
Q10: How important is having a use case?
Very important. Without a sustainable and practical use case, an applicant is unlikely to progress far. The HKMA is looking for viable plans, clear implementation roadmaps, a good understanding of the risks, competence in managing the business and risks (AML, in particular), and technical expertise.
Conclusion
Hong Kong’s stablecoin regime marks a bold new chapter for digital asset regulation, setting a relatively high bar for market entry and operational standards. With robust requirements and a selective licensing process, the HKMA is signalling that only credible and well-prepared players will be able to participate in this evolving landscape. The message for now is clear: the (stable) door is open and those who meet the challenge will go through.
What about future or other opportunities? The HKMA has said that “with practical experience gained, [they] will be in a position to be flexible in certain areas”. So, we can expect that the door will open wider over time. Meanwhile, there are other ways to participate in Hong Kong’s vibrant virtual asset ecosystem: a growing number of SFC-licensees offer virtual asset products and services (alongside “traditional” securities); an increasing volume of real-world assets are being tokenised; and a number of fintech companies are providing value-add services to existing licensed exchanges, brokers, and asset managers engaged in virtual asset activities.
Our dedicated multi-disciplinary virtual assets team at Reed Smith has been advising clients, such as exchanges, SFC licensees, banks, and service providers, on many aspects of virtual assets. Please contact your usual Reed Smith representative or one of the team members below if you would like to know more. We are always ready to assist you.
Client Alert 2025-230
