On May 21, 2025, the passage of the "Hong Kong Stablecoin Regulation" in the Hong Kong Legislative Council marked a critical turning point in regulation. The regulation was published in the Gazette on May 30, 2025, and is set to come into effect on August 1, 2025. Fiat-backed stablecoins (FRS) are no longer in the gray area of crypto finance for activities conducted within Hong Kong, issued from outside Hong Kong, or involving the Hong Kong dollar, but are instead incorporated into a formal legal framework regulated by institutions. This regulation reflects a deliberate recalibration: it aims to position Hong Kong as a compliant and forward-looking virtual asset hub capable of supporting the next generation of programmable finance within a rule of law framework. This article analyzes the key provisions of the regulation, its strategic positioning, practical implications, and clarifies its distinction from related technologies such as Real World Asset tokenization (RWA).
Legal Infrastructure
The legislation constructs a complex semantic system regarding digital value. Stablecoins are defined not only as functional tools but are also delineated from technical, economic, and legal dimensions: they must have cryptographic guarantees, be used as a medium for value storage or exchange, and operate on distributed ledger technology (DLT). "Specific stablecoins" further narrow the scope to tokens pegged to official currencies or other units approved by the Hong Kong Monetary Authority ("HKMA").
The scope of regulated activities is extensive, covering not only issuance and redemption but also marketing, operational participation, and even indirect inducement involving Hong Kong residents. This broad definition ensures the regulatory coverage while minimizing the space for regulatory arbitrage based on geography or type of activity.
The principle of fiat currency support is at the core. The regulations clearly state that any "specific stablecoin" must be redeemable in full for the fiat currency it is pegged to, especially the Hong Kong dollar. This is not just a mechanical requirement, but a fundamental safeguard mechanism. Fiat currency support ensures that stablecoins can operate as reliable monetary tools rather than speculative crypto-assets. The Monetary Authority requires that reserve assets must be high-quality and liquid assets (such as cash and short-term government bonds), and that they are denominated in the same fiat currency that the stablecoin is pegged to. This measure eliminates the risk of currency mismatch, meaning that discrepancies between the reserve asset currency and the stablecoin currency could lead to depreciation in value. Furthermore, it also isolates users from exposure to volatility contagion risk — that is, the impact on the stablecoin market from panic selling triggered by a crash in unpegged crypto-assets.
The regulations explicitly prohibit the use of highly volatile or illiquid assets as the anchor basis, such as real estate tokens, commodity portfolios, or mixed asset indices. If a token cannot be clearly redeemed for fiat currency and lacks clear fiat currency support, it is not considered a stablecoin and cannot enjoy legal protection. This practice effectively prevents regulatory arbitrage and stops financial engineering from blurring the lines between asset-backed securities and monetary instruments, thus reflecting Hong Kong's position of prioritizing financial stability over speculative or synthetic innovation.
Licensing Framework
The regulation introduces a comprehensive prudential licensing system, emphasizing the systemic importance of stablecoin issuers. Key requirements include:
Capital Bottom Line: The minimum paid-in capital is HKD 25 million.
Reserve Structure: Issuers must maintain high-quality, liquid reserve assets (such as cash, short-term government bonds) corresponding to the circulating stablecoin at a 1:1 ratio.
Isolation and Legal Protection: Reserve assets must be placed in a trust or similar closed mechanism and cannot be used by other creditors in the event of bankruptcy.
Redemption Mechanism: A mechanism must be in place to ensure that redemption requests are fulfilled at face value in real-time; delays or additional fees constitute a legal violation.
Governance Review: The appointment of shareholders, directors, and stablecoin management personnel must be approved by the Monetary Authority and must continuously meet the "fit and proper" standards and disclosure obligations.
License holders are also required to continuously fulfill relevant obligations, including paying annual fees, reporting significant changes, and submitting annual compliance reports.
In addition, the Financial Secretary announced on June 6 that unlicensed issuers are allowed to offer non-regulated stablecoin propositions to professional investors as defined under the Securities and Futures Ordinance, while maintaining certain operational flexibility without crossing regulatory boundaries.
Regulatory Authority and Law Enforcement Tools
The regulatory power of the Monetary Authority is equipped with strong tools:
Investigation Authority: Authorized investigators may request documents, conduct site inspections, and require sworn statements.
Sanction Mechanism: The regulations grant the Monetary Authority multi-tiered sanctioning powers, including fines, revocation or withdrawal of licenses, public warnings, confiscation orders, and the appointment of statutory managers; the Monetary Authority has also conducted public consultations on the detailed regulatory requirements under the regulations, focusing on core compliance provisions such as anti-money laundering and combating the financing of terrorism, laying the operational guidelines for future law enforcement.
Management Intervention: The Monetary Authority can appoint a statutory manager to take over licensed entities facing operational difficulties - this was originally a tool exclusive to systemic banks.
Arbitration Mechanism: An independent "Stablecoin Arbitration Office" is responsible for judicial review of sanction decisions, license approvals, and investigative actions.
Prohibited Acts and Criminal Liability: Clarifying Legal Boundaries
The regulations clearly outline the activities that actors in the virtual asset market are prohibited from engaging in, enhancing legal certainty and reinforcing market discipline. Key prohibitions include:
Unlicensed Operation (Article 9): Engaging in regulated activities related to stablecoins (including issuance, redemption, management) or claiming to engage in related activities constitutes a criminal offense, regardless of whether it is based in Hong Kong, as long as its activities are directed at the Hong Kong market.
Illegal Issuance of Specific Stablecoins (Article 9): Offering specific stablecoins to the public without obtaining appropriate permission constitutes an independent criminal offense;
Advertising Restrictions (Article 10): If a party is unlicensed or not exempt, publishing or preparing to publish advertisements indicating its participation in stablecoin activities or the issuance of stablecoins is a criminal offense;
Fraud and Misleading (Article 11): Any attempt to commit fraud, misleading, false advertising, etc. regarding stablecoin transactions is a crime, including false statements about reserve support, redemption rights, or relationships with licensed entities.
Inducement Offense (Article 12): It constitutes a criminal offense to induce others to purchase, dispose of, subscribe to, or underwrite specific stablecoins through false statements or willful disregard of the truth.
Transitional Provisions
The regulation is scheduled to take effect on August 1, 2025, and includes a time-limited transitional arrangement: stablecoin issuers that have been operating substantially in Hong Kong prior to the official implementation of the regulation may continue to operate for six months if they submit a license application within the first three months. However, this is not an indefinite or unconditional exemption; those without a license must exit the market or complete the authorization process according to the law.
International Comparison and Hong Kong's Differentiated Positioning
Compared to the EU's Markets in Crypto-Assets Regulation (MiCA), Singapore's Payment Services Act 2019, and the state-level remittance licensing system in the United States, Hong Kong's regulations demonstrate a unique regulatory choice:
Mandatory Redemption Obligation: Most jurisdictions (including MiCA and the US MTL system) allow for redemption delays or issuer discretion; for example, MiCA permits redemption within five business days, while Hong Kong mandates immediate redemption at face value.
Introduction of Legal Management Mechanism: The "pre-bankruptcy intervention rights," which are rarely seen in cryptocurrency asset legislation, have been explicitly introduced in the Hong Kong regulations, originally an exclusive tool for banks.
Intersection with Bank Regulation: Capital requirements, reserve segregation, "fit and proper" standards, and other regulatory requirements are similar to those of traditional deposit institutions, blurring the lines between token issuers and traditional financial intermediaries.
This strategic difference reflects Hong Kong's priority for stability and fiat currency anchoring, rather than merely pursuing market growth or issuer flexibility.
Tokenization of Physical Assets: Key Distinctions
A common misconception is that the compliance of stablecoins implies that RWA is also indirectly recognized. This is not the case. The regulation does not provide a direct path or legal recognition for RWA projects.
Stablecoins operate within the framework of fiat currency, while RWA involves tokenizing domestic assets (such as real estate, stocks, and bonds). The regulations emphasize that there are still gaps in oversight for RWA, with major challenges including:
Cross-border asset transfer: Tokenizing assets located in mainland China involves foreign exchange controls, securities regulations, and capital account supervision.
QFII Restrictions: Unless obtaining QFII/RQFII approval through traditional channels, domestic assets may not be used for tokenization across borders.
Stablecoin license ≠ RWA legality: Obtaining FRS permission does not equate to being legally allowed to engage in RWA business, especially for illiquid, unverified, or assets that are in a "firewall" status.
RWA projects must address their independent legal challenges. Stablecoins can serve as payment or collateral tools within the RWA ecosystem, but they do not resolve the core legal issues of cross-border asset circulation.
Actual Impact and Industry Adjustment
The new regulations will fundamentally change the way virtual asset companies operate in Hong Kong. Both issuers and investors must reassess their strategies, partners, and legal risks.
Issuer: The era of launching products quickly is over. Issuing stablecoins requires robust financial governance, real currency backing, and clear legal responsibilities. The capital requirement starts at HKD 25 million, along with auditing costs, reserve checks, and real-time redemption systems, significantly raising the threshold. Unlicensed issuance is no longer a "risk" but a criminal offense.
Banks and trust institutions: They can naturally become reserve custodians, compliance verifiers, and risk managers. In the future, they may develop services such as stablecoin treasury management and KYC support, but they also need to upgrade systems to support tokenized transactions and assess legal liabilities.
Investors: Enhanced protection, reduced choices temporarily. The separation of forced redemption rights and reserves has boosted investor confidence. Although the initial choices of stablecoins may decrease, in the long run, it will be easier to identify truly compliant stablecoins that are backed by fiat.
Global Platform: It is no longer permissible to "incidentally" offer stablecoins to Hong Kong. Under the new regulations, a dedicated compliance strategy must be established. Unlike the EU's MiCA passporting system, Hong Kong does not recognize external licenses. Promoting or providing asset-backed tokens to Hong Kong users is highly likely to violate advertising laws.
Developers and DeFi builders: Technology cannot surpass the law. Any protocol development that interacts with fiat stablecoins must prioritize compliance from the outset and embed a status verification system for stablecoin issuers.
Conclusion
Hong Kong's stablecoin regulations are a strategic choice made with intention: to incorporate crypto finance into a system of institutional accountability. By integrating licensing, regulation, and enforcement within a unified framework, Hong Kong sends a clear signal to the global market: digital finance must operate under the rule of law. Market participants should be prepared for stringent audits, reserve checks, and ongoing regulatory dialogues. Those who adapt will not only survive but also shape the future of compliant digital finance in Asia.
But the deeper question remains: Can programmable currency thrive in a rule-of-law economy? Can decentralized technology coexist with centralized regulation? Can crypto innovation gain public trust without enforceable redemption rights and institutional accountability? These challenges are further amplified by the following unresolved cracks: how to balance AML/CFT regulation while retaining anonymity features; and how mainland capital controls interact with the cross-border circulation of Hong Kong dollar stablecoins or the tokenization of mainland assets.
These tensions reinforce the core proposition of Hong Kong: the key to financial evolution lies not in speed, but in sovereignty, stability, and systemic integrity. Only regulation can establish trust where technology cannot self-verify trust. Without trust, innovation will ultimately fail.
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Interpreting the new regulations on Hong Kong stablecoins: How will it reshuffle the industry landscape?
Introduction
On May 21, 2025, the passage of the "Hong Kong Stablecoin Regulation" in the Hong Kong Legislative Council marked a critical turning point in regulation. The regulation was published in the Gazette on May 30, 2025, and is set to come into effect on August 1, 2025. Fiat-backed stablecoins (FRS) are no longer in the gray area of crypto finance for activities conducted within Hong Kong, issued from outside Hong Kong, or involving the Hong Kong dollar, but are instead incorporated into a formal legal framework regulated by institutions. This regulation reflects a deliberate recalibration: it aims to position Hong Kong as a compliant and forward-looking virtual asset hub capable of supporting the next generation of programmable finance within a rule of law framework. This article analyzes the key provisions of the regulation, its strategic positioning, practical implications, and clarifies its distinction from related technologies such as Real World Asset tokenization (RWA).
Legal Infrastructure
The legislation constructs a complex semantic system regarding digital value. Stablecoins are defined not only as functional tools but are also delineated from technical, economic, and legal dimensions: they must have cryptographic guarantees, be used as a medium for value storage or exchange, and operate on distributed ledger technology (DLT). "Specific stablecoins" further narrow the scope to tokens pegged to official currencies or other units approved by the Hong Kong Monetary Authority ("HKMA").
The scope of regulated activities is extensive, covering not only issuance and redemption but also marketing, operational participation, and even indirect inducement involving Hong Kong residents. This broad definition ensures the regulatory coverage while minimizing the space for regulatory arbitrage based on geography or type of activity.
The principle of fiat currency support is at the core. The regulations clearly state that any "specific stablecoin" must be redeemable in full for the fiat currency it is pegged to, especially the Hong Kong dollar. This is not just a mechanical requirement, but a fundamental safeguard mechanism. Fiat currency support ensures that stablecoins can operate as reliable monetary tools rather than speculative crypto-assets. The Monetary Authority requires that reserve assets must be high-quality and liquid assets (such as cash and short-term government bonds), and that they are denominated in the same fiat currency that the stablecoin is pegged to. This measure eliminates the risk of currency mismatch, meaning that discrepancies between the reserve asset currency and the stablecoin currency could lead to depreciation in value. Furthermore, it also isolates users from exposure to volatility contagion risk — that is, the impact on the stablecoin market from panic selling triggered by a crash in unpegged crypto-assets.
The regulations explicitly prohibit the use of highly volatile or illiquid assets as the anchor basis, such as real estate tokens, commodity portfolios, or mixed asset indices. If a token cannot be clearly redeemed for fiat currency and lacks clear fiat currency support, it is not considered a stablecoin and cannot enjoy legal protection. This practice effectively prevents regulatory arbitrage and stops financial engineering from blurring the lines between asset-backed securities and monetary instruments, thus reflecting Hong Kong's position of prioritizing financial stability over speculative or synthetic innovation.
Licensing Framework
The regulation introduces a comprehensive prudential licensing system, emphasizing the systemic importance of stablecoin issuers. Key requirements include:
License holders are also required to continuously fulfill relevant obligations, including paying annual fees, reporting significant changes, and submitting annual compliance reports.
In addition, the Financial Secretary announced on June 6 that unlicensed issuers are allowed to offer non-regulated stablecoin propositions to professional investors as defined under the Securities and Futures Ordinance, while maintaining certain operational flexibility without crossing regulatory boundaries.
Regulatory Authority and Law Enforcement Tools
The regulatory power of the Monetary Authority is equipped with strong tools:
Prohibited Acts and Criminal Liability: Clarifying Legal Boundaries
The regulations clearly outline the activities that actors in the virtual asset market are prohibited from engaging in, enhancing legal certainty and reinforcing market discipline. Key prohibitions include:
Transitional Provisions
The regulation is scheduled to take effect on August 1, 2025, and includes a time-limited transitional arrangement: stablecoin issuers that have been operating substantially in Hong Kong prior to the official implementation of the regulation may continue to operate for six months if they submit a license application within the first three months. However, this is not an indefinite or unconditional exemption; those without a license must exit the market or complete the authorization process according to the law.
International Comparison and Hong Kong's Differentiated Positioning
Compared to the EU's Markets in Crypto-Assets Regulation (MiCA), Singapore's Payment Services Act 2019, and the state-level remittance licensing system in the United States, Hong Kong's regulations demonstrate a unique regulatory choice:
This strategic difference reflects Hong Kong's priority for stability and fiat currency anchoring, rather than merely pursuing market growth or issuer flexibility.
Tokenization of Physical Assets: Key Distinctions
A common misconception is that the compliance of stablecoins implies that RWA is also indirectly recognized. This is not the case. The regulation does not provide a direct path or legal recognition for RWA projects.
Stablecoins operate within the framework of fiat currency, while RWA involves tokenizing domestic assets (such as real estate, stocks, and bonds). The regulations emphasize that there are still gaps in oversight for RWA, with major challenges including:
RWA projects must address their independent legal challenges. Stablecoins can serve as payment or collateral tools within the RWA ecosystem, but they do not resolve the core legal issues of cross-border asset circulation.
Actual Impact and Industry Adjustment
The new regulations will fundamentally change the way virtual asset companies operate in Hong Kong. Both issuers and investors must reassess their strategies, partners, and legal risks.
Conclusion
Hong Kong's stablecoin regulations are a strategic choice made with intention: to incorporate crypto finance into a system of institutional accountability. By integrating licensing, regulation, and enforcement within a unified framework, Hong Kong sends a clear signal to the global market: digital finance must operate under the rule of law. Market participants should be prepared for stringent audits, reserve checks, and ongoing regulatory dialogues. Those who adapt will not only survive but also shape the future of compliant digital finance in Asia.
But the deeper question remains: Can programmable currency thrive in a rule-of-law economy? Can decentralized technology coexist with centralized regulation? Can crypto innovation gain public trust without enforceable redemption rights and institutional accountability? These challenges are further amplified by the following unresolved cracks: how to balance AML/CFT regulation while retaining anonymity features; and how mainland capital controls interact with the cross-border circulation of Hong Kong dollar stablecoins or the tokenization of mainland assets.
These tensions reinforce the core proposition of Hong Kong: the key to financial evolution lies not in speed, but in sovereignty, stability, and systemic integrity. Only regulation can establish trust where technology cannot self-verify trust. Without trust, innovation will ultimately fail.