← Back to Reports

Legislative Progress on Stablecoin Regulation in Hong Kong

•PANONY Research

1. Introduction

On May 21, 2025, Hong Kong’s Legislative Council formally passed the Stablecoin Ordinance Bill (《穩定幣條例草案》), establishing a comprehensive licensing regime for fiat-backed stablecoin issuers. This legislation, set to take effect in 2024, aims to enhance financial stability, combat money laundering, and position Hong Kong as a global leader in digital asset innovation. The ordinance aligns with the 2022 Policy Declaration on Virtual Asset Development and amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615).

2. Key Legislative Provisions

2.1 Licensing Framework (Section 3 of the Ordinance)

The bill mandates licensing for three categories of stablecoin-related activities:

  1. Issuing Fiat-Backed Stablecoins in Hong Kong: Applies to any entity issuing stablecoins pegged to fiat currencies (e.g., HKD, USD, RMB) within Hong Kong.
  2. Issuing HKD-Denominated Stablecoins Globally: Covers entities issuing HKD-linked stablecoins, regardless of their physical location.
  3. Promoting Stablecoins to Hong Kong Residents: Includes marketing or distributing stablecoins to retail investors in Hong Kong.

Exemptions: Banks, SFC Type 1-licensed entities, and licensed virtual asset trading platforms are permitted to distribute stablecoins without additional approvals.

2.2 Core Regulatory Requirements

  • Reserve Management (Section 5.1):
    • Issuers must maintain 100% reserves in high-quality, liquid assets, including bank deposits, short-term government bonds (maturity ≤ 3 months), and AAA-rated reverse repurchase agreements.
    • Reserves must be audited quarterly by independent third parties.
  • Redemption Rights (Section 5.2):
    • Stablecoin holders may redeem tokens at par value within 5 business days, with no fees charged.
    • Issuers must publicly disclose redemption procedures and liquidity management policies.
  • Capital and Governance (Section 4):
    • Minimum HKD 25 million in paid-up capital for license applicants.
    • Senior management must pass “fit and proper” tests, including background checks and AML compliance expertise.
  • AML/CFT Compliance (Section 7):
    • Adherence to Financial Action Task Force (FATF) standards, including transaction monitoring and suspicious activity reporting.

2.3 Enforcement and Penalties (Section 10)

  • Unlicensed Activities: Fines up to HKD 5 million and 7 years’ imprisonment.
  • Misrepresentation of Reserves: Fines up to HKD 10 million and license revocation.
  • Non-Compliant Marketing: Penalties for unauthorized retail distribution, including fines and injunctions.

3. Implementation Timeline and Transition Period

  • Effective Date: The ordinance will take effect 6 months after gazettal (expected by Q4 2024).
  • Transition Arrangements (Section 12): Existing issuers must apply for licenses within 3 months of enactment, with a 6-month grace period for compliance adjustments.

4. Case Study: Regulatory Sandbox Participants

The Hong Kong Monetary Authority (HKMA) has approved three entities for its Stablecoin Issuer Sandbox:

  1. Standard Chartered Hong Kong: Testing a HKD-pegged stablecoin integrated with institutional payment systems.
  2. Animoca Brands & Hong Kong Telecom Consortium: Developing a multi-currency stablecoin platform for gaming and metaverse applications.
  3. JD Technology (Hong Kong): Piloting a RMB-backed stablecoin linked to real-world assets (RWAs), aligned with China’s digital yuan (e-CNY) infrastructure.

5. Strategic Objectives and Global Context

5.1 RMB Internationalization

Legislators emphasized the inclusion of RMB-backed stablecoins to strengthen Hong Kong’s role as a digital bridge between Mainland China and global markets, accelerating RMB adoption in cross-border trade and DeFi ecosystems.

5.2 Competitive Licensing Approach

  • Flexible Licensing (Section 4.3): The HKMA may issue licenses without fixed terms, contingent on ongoing compliance.
  • Lawmakers urged “light-touch supervision” for sandbox participants to foster innovation.

5.3 Comparison with U.S. GENIUS Act

  • Divergent Approaches:
    • Hong Kong: Focuses on multi-currency stablecoins (HKD, RMB) and institutional adoption.
    • U.S. GENIUS Act: Prioritizes USD dominance, requiring issuers to be FDIC-insured depository institutions.

6. Future Regulatory Roadmap

  • Phase 2 Consultations (2025): The HKMA will review regulations for:
    • OTC Virtual Asset Trading: Licensing requirements for non-exchange platforms.
    • Custody Services: Standards for safeguarding client assets.
  • Policy Declaration Update: A second Virtual Asset Policy Declaration will address NFTs, tokenization, and decentralized finance (DeFi).

7. Industry Impact and Recommendations

  • Opportunities:
    • Institutional Adoption: Banks and fintech firms may leverage licensed stablecoins for cross-border settlements.
    • RWA Tokenization: Projects like JD Technology’s stablecoin could bridge TradFi and blockchain ecosystems.
  • Challenges:
    • Compliance Costs: Smaller issuers may struggle with the HKD 25 million capital threshold.
    • Market Consolidation: Likely dominance by established players (e.g., banks, tech giants).

Recommendations for Market Participants:

  • Engage early with the HKMA sandbox to test business models.
  • Prioritize partnerships with licensed custodians and exchanges.
  • Monitor updates to AML/CFT guidelines under Cap. 615.

Comparison Table: U.S. GENIUS Act Stablecoin Bill vs. Hong Kong Stablecoin Ordinance Draft

Comparison DimensionU.S. GENIUS Act Stablecoin BillHong Kong Stablecoin Ordinance Draft
Regulatory GoalsConsolidate the U.S. dollar’s global dominance, balance innovation with financial stability, support President Trump’s strategy to make the U.S. a "global crypto hub."Strengthen Hong Kong’s role as an Asian financial hub, promote virtual asset development while mitigating risks, align with the EU’s MICA framework, and serve as a digital bridge between Mainland China and international markets.
ScopeFocuses on payment-type USD stablecoins (excludes CBDC).Supports HKD-denominated stablecoins, with potential inclusion of USD and RMB stablecoins.
Legislative ProgressPassed a procedural vote in the Senate, now entering the House of Representatives for amendments.Passed by the Legislative Council on May 21, expected to take effect within 2024.
Issuer RequirementsIntroduces a dual regulatory framework: issuers may register at state or federal level. Entities with market cap >$10B are federally regulated. Foreign issuers must comply strictly; limits non-financial tech giants.Issuers must apply for a license from the HKMA, meet capital and reserve requirements (e.g., minimum paid-up capital of HKD 25 million). Foreign issuers must satisfy compliance conditions.
Reserve Requirements1:1 reserve ratio in high-quality liquid assets (cash, short-term U.S. Treasuries, central bank deposits). Reserves must be segregated from operational funds and certified monthly.Reserves must consist of high-quality, liquid assets (cash, bank deposits, government bonds, repo/reverse repo agreements, and money market funds). Reserves must equal the face value of stablecoins in circulation and be segregated.
AML & Risk ManagementClassifies stablecoin issuers as financial institutions under the Bank Secrecy Act. They must fulfill AML obligations, including customer identification, due diligence, and suspicious activity reporting. Holders have priority in bankruptcy proceedings.Includes comprehensive AML requirements, risk controls, audit disclosures, and “fit and proper” tests for management.
ControversiesFaces disputes over ties to Trump family projects and insufficient AML provisions; legislative progress is slow.Minimal controversy. A regulatory sandbox already includes three participants: Standard Chartered Hong Kong, a consortium (Animoca Brands & HK Telecom), JD CoinChain, and Round Dollar Technology.
Strategic SignificanceSafeguard the digital dominance of the USD, establish a global stablecoin regulatory template, and prevent non-compliant projects from disrupting financial order.Secure leadership in Asia’s stablecoin market, strengthen local currency dominance, and attract global compliant issuers.

Conclusion

Hong Kong’s Stablecoin Ordinance Bill sets a global benchmark for balancing innovation with robust oversight. By codifying strict reserve rules, redemption rights, and AML safeguards—while fostering RMB-linked solutions—the city solidifies its position as Asia’s digital finance hub. As the U.S. and EU refine their frameworks, Hong Kong’s agility in regulation and cross-border integration will be critical to its competitive edge.

Source: PANews | www.PANewsLab.com