Will the new Stablecoins Law potentially make Hong Kong the leading virtual asset center in Asia?
Hong Kong Pioneers Comprehensive Stablecoin Legislation
In a significant move for the digital currency market, Hong Kong is set to become the first major international financial centre to implement comprehensive stablecoin legislation. The new Stablecoins Ordinance, effective from August 1, 2025, will require issuers of fiat-referenced stablecoins (FRS) to obtain a license from the Hong Kong Monetary Authority (HKMA) to operate legally within or targeting the Hong Kong market.
The new regulations aim to ensure that FRS issuers operate with strong capital backing, prudent risk management, and compliance with anti-money laundering (AML) and counter-financing of terrorism (CFT) rules. Key requirements for licensed FRS issuers include incorporation and business scope, a sound and viable business plan, capital and liquidity, reserve asset management, non-interest bearing stablecoins, and compliance with various regulatory requirements.
Issuers must be either a Hong Kong incorporated company or an authorized institution under the Banking Ordinance, with dedicated and sufficient resources exclusively for the licensed stablecoin activities. HKMA consent is required before engaging in other business activities. The issuer must have a realistic, concrete, and viable business plan that demonstrates reasonable prospects for demand and business sustainability.
A minimum paid-up share capital of HK$25 million is required, alongside sufficient liquid assets to meet obligations as they arise. Stablecoins must be fully backed by high-quality, highly liquid reserve assets held under a trust arrangement by a licensed bank or qualified custodian approved by HKMA. The reserve assets must match the referenced fiat currency, with some case-by-case flexibility subject to approval.
Issuers are prohibited from paying any interest or interest-like incentives to stablecoin holders, including profits or returns. All income or loss from reserve asset management must be borne by the issuer. Compliance with AML/CFT regulations, risk management protocols, disclosure, and auditing standards as set out in HKMA guidelines published alongside the Stablecoins Ordinance are mandatory.
Protections under the regime include a structured licensing framework that requires transparency through publicly available information on licensed issuers and regulatory oversight to maintain financial stability and consumer protection. In insolvency situations, stablecoin holders can direct the reserve pool's disposal and claim any shortfall.
The Stablecoins Ordinance is generating significant market interest, with financial giants like Ant Group and Standard Chartered Bank reportedly applying for licenses. The framework's robust legal foundations are particularly important for institutional adoption. The HKMA has been granted extensive powers to investigate and enforce compliance, with certain breaches constituting criminal offences.
Looking ahead, the ordinance could potentially make it illegal to offer USDT and USDC, which together represent approximately 85 percent of stablecoin market capitalisation worldwide, unless a license is held. However, Hwang, a prominent figure in the digital asset industry, suggests that the expected VAOTC (Virtual Asset Over-the-Counter) regime could fix the concerns expressed about the Stablecoins Ordinance, allowing more latitude for transactions in cryptocurrencies (including stablecoins) between institutions or professional investors.
The ordinance seems primarily designed for institutional issuers, which may inadvertently exclude entrepreneurial innovators who have traditionally been the driving force behind fintech advancement. Despite these concerns, Hwang believes that Hong Kong needs to pave the way for greater institutional acceptance and adoption of virtual financial assets to become a global leader in the digital currency market.
The Stablecoins Ordinance differentiates fully backed, credible stablecoins from riskier instruments, building confidence among users and regulated financial institutions. This could particularly impact family offices and other institutional investors who regularly use these instruments for cryptocurrency transactions. The ordinance is a significant milestone in the evolution of digital assets, aiming to reshape investor protection and market stability.
Sources: 1. Hong Kong Stablecoins Ordinance 2. Consultative Paper on Stablecoins Ordinance 3. Hong Kong to Regulate Stablecoins
- Upon the effective date of the Stablecoins Ordinance in August 2025, finance businesses aiming to issue fiat-referenced stablecoins within or targeting the Hong Kong market will need to secure a license from the Hong Kong Monetary Authority (HKMA) to ensure compliance with the law, as part of the new regulatory requirements that cover capital backing, prudent risk management, anti-money laundering (AML) and counter-financing of terrorism (CFT) rules, business scope, and various other regulatory standards.
- The new Stablecoins Ordinance in Hong Kong, which differentiates fully backed, credible stablecoins from riskier instruments, will potentially impact the business operations of technology companies that deal with virtual financial assets, as effective regulations could build confidence among users and regulated financial institutions, creating new opportunities for innovation and growth in the digital currency market.
