On 21st May 2025, the Hong Kong Legislative Council passed the Stablecoins Bill, establishing a new licensing framework for issuers of fiat-referenced stablecoins (“FRS”). The Stablecoins Ordinance (Chapter 656 of the Laws of Hong Kong) (“SO”) is set to come into effect on 1st August 2025. The SO establishes a comprehensive regulatory structure for stablecoins, which are virtual assets designed to maintain a stable value linked to fiat currencies. In line with the principle of “same activity, same risk, same regulation” embraced by Hong Kong's financial regulators for virtual asset trading platforms and traditional financial activities, the SO seeks to ensure financial stability and regulatory transparency while promoting innovation in Hong Kong.
Licensing Requirements
According to the SO, any person who: (i) issues a stablecoin in Hong Kong in the course of business; (ii) issues a stablecoin in a place outside Hong Kong in the course of business, and the stablecoin purports to maintain a stable value with reference to the Hong Kong dollar; or (iii) carries on an activity as may be specified by the Hong Kong Monetary Authority (“HKMA”), are required to obtain a stablecoin license.
The SO further sets out the following minimum criteria which must be met by the licensees:-
1. Corporate Structure – The licensee must be a company incorporated in Hong Kong or an authorised institution (i.e., a bank, a restricted license bank, or a deposit-taking company) incorporated outside Hong Kong.
2. Financial Resources – Minimum paid-up share capital of HK$25 million (around US$3.2 million), or its equivalent, with adequate liquid assets to meet obligations.
3. Reserve assets management - Every issued stablecoin must be fully backed by high-quality, liquid reserve assets that are segregated and protected from other creditors' claims. The value of these reserves must at least match the total par value of the stablecoins in circulation and be held in the currency to which the stablecoin is pegged.
4. Redemption rights – Stablecoin holders must have the right to redeem at par value in the pegged currency without unreasonable and burdensome conditions and fees.
5. Risk management and internal controls - Licensees must implement adequate and appropriate risk management frameworks and internal controls addressing operational, financial, technological and compliance risks.
6. Disclosure – Issuers must provide clear and transparent information, including a white paper, for each stablecoin issued. Issuers must also make timely disclosure on their complaints handling and redress mechanisms, as well as policies related to conflicts of interest.
7. Governance - The appointment of controllers and senior management requires prior approval from the HKMA. Controllers, chief executives, directors, stablecoin managers, and licensee controllers must meet fit and proper standards, while those managing daily operations must have the necessary expertise and qualifications.
Open-Ended License
A license issued under the SO is open-ended, remaining valid unless revoked by the HKMA. Licensees will undergo ongoing supervision by the HKMA. Furthermore, licenses can be either unconditional or conditional and the HKMA has the authority to add, remove, or modify any conditions associated with the license after it has been granted.
Transition Period
The SO includes transitional provisions to help market participants apply for stablecoin licenses and ensure compliance. Existing stablecoin operators have a limited timeframe to apply and can continue operations while their applications are reviewed.
Offering and Advertising of Stablecoins
The regulatory framework governs not only the issuance of stablecoins but also related activities such as offering. Under the SO, individuals or entities must be licensed issuers or authorized providers to offer a specified stablecoin, unless exempted by the HKMA. Notably, "offering" differs from "issuance" as it involves any communication to the Hong Kong public that provides sufficient information for potential buyers to make informed decisions.
For instance, a person would be regarded as “offering” a specified stablecoin if, in the course of business, he communicates sufficient information to another person regarding (1) the stablecoin to be offered; (2) the terms on which the stablecoin will be offered; and (3) the channels through which the stablecoin will be offered, so as to enable that person to make a decision on whether to acquire the stablecoin from the offeror.
Supervision and Enforcement by the HKMA
The SO endows the HKMA with investigative and enforcement authority to oversee stablecoin activities. The HKMA can require production of records, issue directives, create regulations, and provide guidelines for supervision. It may impose sanctions on regulated persons, including monetary penalties (up to HK$10 million or three times the profit gained/loss avoided, whichever is greater), warnings, reprimands, or bans on license applications for a specified period or until specific conditions are met.
Stablecoin Review Tribunal is also established under the SO to review decisions made by the HKMA, including those related to its investigations and enforcement actions.
In conclusion, the SO establishes a robust regulatory framework for the issuance and offering of FRS. It clarifies compliance for FRS issuers and strengthens Hong Kong's position as the Asian hub for the Web3 industry. It is advisable for entities engaged in stablecoin activities to stay tuned and be mindful of the requirements under the SO.
