Hong Kong Stablecoin Licensing and Regulatory Regime

1. What is a Stablecoin again?

Stablecoins are generally understood as crypto assets that aim to maintain a stable value with reference to a "real-world" asset, or a pool or basket of assets, such as fiat currencies or commodities.

2. Legislative Journey

The stablecoin legal and regulatory regime was first proposed in a discussion paper published by the Hong Kong Monetary Authority (HKMA) on crypto-assets and stablecoins in January 2022 and which concluded in January 2023.

Joint consultation papers and consultation conclusions on the legislative proposal for implementing the regulatory regime for stablecoin issuers were then put forth by the HKMA and the Financial Services and Treasury Bureau in December 2023 and July 2024 respectively.

3. The Hong Kong Stablecoin Legal and Regulatory Framework so far

• Stablecoins Bill (21 May 2025)
  The Legislative Council passed the Stablecoins Bill in May 2025. The Hong Kong government has indicated that the Stablecoins Ordinance is expected to come into effect in 2025.

• Stablecoin-related consultation documents (26 May 2025)
  HKMA released the following consultation documents (Stablecoin Consultation
  Documents) shortly after passing the Stablecoins Bill.

  • Consultation Draft Guideline on Supervision of Licensed Stablecoin Issuers

    This sets out the HKMA's expectations regarding the minimum criteria in Schedule 2 to the Stablecoins Ordinance which a licensee is required to fulfil on an ongoing basis.

  • Draft Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Stablecoin Issuers)

    which sets out the proposed AML/CFT requirements for stablecoin issuers.

  Consultation has since been closed. The HKMA has indicated that additional guidelines will be issued in 2025.

4. Scope of the Stablecoins Ordinance (the Ordinance)

Under the Ordinance, a "stablecoin" is defined as an asset which is:

• expressed as a unit of account or store of economic value;

• intended to be used as a medium of exchange for payment for goods or services, discharge of a debt, or investment;

• can be transferred, stored or traded electronically;

• operated on a distributed ledger or similar information repository; and

• purports to maintain a stable value with reference to a single asset or a pool or basket of assets.

In line with the HKMA's previous indication, the Ordinance applies to stablecoins that aim to maintain a stable value with sole reference to fiat.

5. Who needs to be licensed by HKMA under the Ordinance

• Issuers of stablecoins in Hong Kong;

• Issuers of Hong Kong Dollar-linked stablecoins outside of Hong Kong; and

• Entities that actively market to the Hong Kong public a stablecoin issuance.

To avoid overlapping regulatory regimes, the scope of the stablecoin licensing regime excludes certain financial instruments that are already regulated. These include:

• tokenized deposits regulated under the Banking Ordinance,

• securities or futures contracts regulated under the Securities and Futures Ordinance,

• floats held in stored value facilities (SVF) and SVF deposits under the Payment Systems and Stored Value Facilities Ordinance,

• central bank or government-issued stablecoins, and

• "limited purpose digital tokens" like loyalty/reward points or in-game tokens regulated by the Anti-Money Laundering and Counter-Terrorist Financing Ordinance.

6. Key licensing requirements applicable to Stablecoin issuers

Licensees are expected to fulfil the following minimum requirements:

• Incorporation and corporate structure:

  Licensees must either be a Hong Kong incorporated company or an Authorized Institution incorporated overseas with a principal place of business in Hong Kong.

• Adequate financial resources:

  Minimum paid-up share capital of at least HKD 25 million, unless the licensee is an Authorized Institution.

• Reserve asset management:

  Stablecoins must be fully backed by high quality, liquid reserve assets with minimal investment risks. The market value of the specified reserve asset pool must be at least equal to the par value of the total stablecoins in circulation and segregated from other reserves held by the licensee. Owing to these reserve asset management requirements, algorithmic, unbacked, stablecoins are not permitted.

• Right to redemption:

  The stablecoin holders must be able to redeem their stablecoins at par value without unreasonable conditions or fees and as soon as practicable.

• Prohibition on interest bearing stablecoins:

  Licensees are not permitted to pay stablecoins holders any interest or return based on (a) the length of the period during which the holder holds the stablecoins; (b) the par value of the stablecoins; and (c) the market value of the stablecoins.

• Prudent risk management and compliance measures:

  Licensees are expected to implement appropriate risk management policies and procedures in line with the scale and complexity of their stablecoin activities (e.g., data security controls, fraud mitigation and operational contingencies).

• Information disclosure requirements:

  Licensees are required to publicly disclose key information about the stablecoins they issue, including redemption mechanisms, rights, complaints handling, reserve assets management policy, terms and conditions through white papers and websites.

• Reporting:

  Audit outcomes and any breaches must be promptly reported to the HKMA.

7. Key requirements for Stablecoin distributor

The Ordinance further provides that only Permitted Offerors may offer fiat-referenced stablecoins in Hong Kong.

A person offers a stablecoin if the person, in the course of business, presents sufficient information to another person regarding the terms, channels and means by which the stablecoin is to be offered, to enable such person to decide whether to acquire the stablecoin. This definition is broad enough to cover both primary and secondary trading of stablecoins.

Permitted offerors are:

• HKMA-licensed stablecoin issuers;

• SFC-licensed virtual asset trading platforms;

• SFC-licensed corporations authorized for Type 1 (dealing in securities) regulated activities; and

• Authorized Institutions (i.e., banks).

Permitted Offers can offer stablecoins issued by a licensed stablecoin issuer. If the stablecoins are issued by unlicensed issuers (e.g. foreign based issuers of non-HKD stablecoins), these can only be offered to the classes of persons the Financial Secretary may specify to whom unlicensed stablecoins can be offered (see Sections 9(2)(b)(iii) and 9(3)). The HKMA has indicated in previous consultations that this class of person shall initially consist of professional investors only.

While this is in line with the SFC's current view that stablecoins should not be made available by licensed VATP to retail investors, it will mean that Hong Kong retail investors will not be able to trade in many global stablecoins on Hong Kong licensed virtual asset exchanges, unless the issuers become licensed in Hong Kong.

8. Key Requirements in Stablecoin Consultation Documents

• Scope and composition of reserve assets:

  Reserve assets should be held in the form of (i) bank deposits with a term of three months or less, (ii) marketable debt securities with residual maturity of no longer than one year, (iii) certain cash receivables and investment funds. Specified stablecoins should be over-collateralized. Reserve assets must be held in the same reference currency (except HKD-USD can be used interchangeably).

• Asset segregation:

  Effective trust arrangements must be in place. Any income and loss from the reserve assets must be attributable to the licensee only and not stablecoins holders.

• Distribution arrangements:

  Licensees shall ensure that third-party distributors are permitted offerors. Risk assessments and due diligence should be conducted on all third-party distributors.

• Insolvency protection:

  Legal opinion shall be provided to support that stablecoin holders will have an exercisable right to claim against reserve assets upon the licensee's insolvency.

• Customer due diligence requirements:

  Stablecoin issuers are expected to conduct customer due diligence checks on stablecoin holders prior to subscription and redemption. There is no requirement for stablecoin issuers to conduct ongoing customer due diligence on stablecoin holders who acquired the stablecoin on the secondary market. However, licensees are expected to take appropriate measures (such as ongoing screening of stablecoin transactions and wallet addresses and blacklisting wallets associated with illicit activities) to identify and report suspicious activities. This approach to customer due diligence is in line with industry practice.

9. Conclusion

Hong Kong's stablecoin regulatory regime comes at a time when stablecoin activity is experiencing immense growth and institutionalization, and when other jurisdictions are introducing their own regimes. The recent successful IPO of one of the world's largest stablecoin issuers is also testament to the regulatory tailwinds and favorable market views towards this asset class.

This is a summary of our reading of the specified materials as of July 2025, it is for information only and is not intended to be exhaustive nor definitive. As this is a developing area, information may become outdated and we ask that you please refer to the primary sources or speak to any of our Cascade Consultants for update. At Cascade Capital, we advise clients on stablecoin issuance applications and work with clients to develop risk, corporate and internal governance policies and systems expected of virtual asset firms.  

References

https://www.elegislation.gov.hk/hk/cap656

https://www.hkma.gov.hk/media/eng/regulatory-resources/consultations/20250526_Consultation_on_Draft_Guideline_on_Supervision_of_Licensed_Stablecoin_Issuers.pdf

For more information please contact us at team@cascadecapitalhk.com.

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