Hong Kong is taking a major step forward in the regulation of digital assets with the upcoming implementation of its new stablecoin regulatory framework. The “Stablecoin Ordinance,” passed by the Legislative Council in May, introduces a mandatory licensing system for issuers of fiat-referenced stablecoins. This initiative aims to create a more secure and transparent environment for digital asset activities in the region. The Hong Kong Monetary Authority (HKMA) will begin accepting license applications starting August 1, marking a significant milestone in the city’s fintech development.
Understanding the New Stablecoin Regulatory Framework
Stablecoins are a type of digital asset designed to maintain a stable value by being pegged to a reserve asset, like a fiat currency. Unlike volatile cryptocurrencies, they are intended for use as a reliable medium of exchange. The new ordinance specifically targets these fiat-referenced stablecoins, bringing their issuance under formal regulatory oversight for the first time.
The HKMA is currently conducting a market consultation to finalize the detailed implementation guidelines for this new licensing regime. This process ensures that the regulatory framework is robust yet adaptable to the evolving digital finance landscape.
HKMA Chief: Stablecoins as Payment Tools, Not Speculative Instruments
Mr. Eddie Yue, Chief Executive of the HKMA, has clearly articulated the authority’s perspective on stablecoins. He emphasizes that stablecoins should be viewed not as investment or speculative tools, but as payment instruments that leverage blockchain technology. Their core function is to facilitate transactions, not to appreciate in value.
Mr. Yue highlighted that stablecoins act as a bridge connecting traditional finance with the digital asset ecosystem. Because of this pivotal role, managing their inherent and systemic risks has become a top priority for regulators worldwide. The Hong Kong approach is closely aligned with the global regulatory framework for crypto-asset activities published by the Financial Stability Board (FSB).
Given the nascent nature of stablecoins and their associated risks, the HKMA has set a high bar for licensing. Mr. Yue indicated that the authority expects to grant only a limited number of licenses in the initial phase, reflecting a careful and selective approach.
Key Requirements for Stablecoin Issuers Seeking a License
To qualify for a license, aspiring stablecoin issuers must demonstrate more than just technical capability. The HKMA’s requirements are comprehensive, focusing on both operational integrity and real-world utility.
Operational and Compliance Capabilities:
- Reserve Management: Issuers must hold sufficient high-quality reserve assets to fully back the stablecoins in circulation, ensuring stability and redeemability.
- Stability Mechanisms: Robust mechanisms must be in place to maintain the peg to the referenced fiat currency under various market conditions.
- User Protection: Clear and reliable policies for user redemption requests are mandatory, guaranteeing holders can convert their stablecoins back to fiat currency.
- Cybersecurity: Strong technological safeguards are required to protect the issuance platform and user assets from cyber threats.
- AML/CFT: rigorous anti-money laundering and counter-financing of terrorism protocols must be established and followed.
Business Viability and Sustainability:
Beyond compliance, applicants must present a concrete and feasible business plan. They need to prove they possess the financial resources and operational strategy to run a sustainable business with genuine use cases. The HKMA will apply consistent and strict standards in evaluating all applications, ensuring only the most qualified entities enter the market.
This dual focus aims to foster a healthy, responsible, and sustainable digital asset sector. By building a regulatory system that suits local market conditions while adhering to international standards, Hong Kong seeks to strengthen its position as a leading international financial center.
👉 Explore the official regulatory framework
Frequently Asked Questions
What is a fiat-referenced stablecoin?
A fiat-referenced stablecoin is a type of digital currency whose value is pegged to a traditional government-issued currency, such as the US dollar or the Hong Kong dollar. Its primary purpose is to provide price stability for use in payments and transfers within the digital economy.
When can companies apply for a stablecoin license in Hong Kong?
The Hong Kong Monetary Authority will begin accepting applications for stablecoin issuer licenses on August 1, following the official enactment of the Stablecoin Ordinance.
Why is the HKMA expecting to issue only a few licenses?
Due to the high risks associated with this emerging asset class, the HKMA has established a very high licensing threshold. This prudent approach ensures that only issuers with the strongest operational capabilities, robust risk management frameworks, and viable business models are approved, protecting consumers and financial stability.
How does this regulation benefit users?
The licensing regime enhances user protection by mandating strict requirements for reserve backing, redeemability, and cybersecurity. It creates a safer environment for individuals and businesses to use stablecoins for payments with greater confidence in their stability and security.
Is this regulation aligned with global standards?
Yes, Hong Kong’s regulatory framework for stablecoins is largely based on the international guidelines set forth by the Financial Stability Board (FSB), ensuring it is consistent with evolving global best practices for crypto-asset regulation.
What happens to unlicensed stablecoin issuers operating in Hong Kong?
Once the law is in effect, issuing stablecoins without a license from the HKMA will be illegal. The regulatory body will have the authority to take action against any unlicensed entities offering these services within its jurisdiction.