Introduction of Stablecoin
On 21 May 2025, Hong Kong passed the Stablecoin Ordinance (“the Ordinance”), marking a significant milestone in regulating stablecoin activities. The Ordinance establishes a stringent licensing regime to ensure financial stability and reinforce Hong Kong’s position as a global financial hub. Effective since 1 August 2025, the Ordinance is supported by forthcoming detailed regulatory guidelines from the Hong Kong Monetary Authority (“HKMA”) to assist market participants with compliance and licensing applications.
Definition of Stablecoins and Specified Stablecoins
– Stablecoins: Digital assets on distributed ledger technology (DLT) used as payment or investment, pegged to assets like HKD or USD.
– Exclusions: Central bank digital currencies, securities or futures under the Securities and Futures Ordinance.
– Specified Stablecoins: Pegged to official currencies (e.g., HKD, U.S. Dollar (“USD”)) or designated units of account by the HKMA.
Scope of Regulated Stablecoin Activities
Covered Activities
– Issuing specified stablecoins in Hong Kong, including design, management, creation, distribution, and redemption processes.
– Issuing HKD-referenced stablecoins globally, even by entities outside Hong Kong, if fully or partially pegged to HKD.
– Marketing or promoting specified stablecoins to Hong Kong residents, including via online platforms or apps.
– Other activities designated by the HKMA via Gazette, based on market developments or risk assessments.
– Activities targeting Hong Kong residents (e.g., through websites or apps) are regulated, even if conducted overseas.
Licensing Regime
Eligibility
– Applicants must be Hong Kong-registered companies or authorized oversea institution with a registered office in Hong Kong.
– Excludes individuals, partnerships, or unincorporated entities to ensure legal and financial accountability.
– Applicants must demonstrate operational presence in Hong Kong (e.g., local management and compliance teams)
Core Requirements
– Financial Soundness: Minimum HK$25,000,000 paid-up share capital; high-quality, highliquidity reserve assets (e.g., government bonds, bank deposits) matching the reference currency for 1:1 redemption, subject to independent audits.
– Governance: Comprehensive corporate structure with experienced management in blockchain, financial regulation, and risk management.
– Compliance: Comprehensive AML/CTF programs per the Anti-Money Laundering and Counter Terrorist Financing Ordinance (Cap. 615); risk management systems for market, operational, and cybersecurity risks.
– Technology: Secure and stable DLT platforms, verified by third-party security audits.
– Investor Protection: Transparent redemption policies with reasonable fees and efficient processes; prohibition on non-licensed entities offering specified stablecoins to retail investors.
License Conditions
– Reserve assets must be held in HKMA-approved custodians, fully segregated, and used solely for stablecoin redemption.
– Monthly reserve asset reports and annual independent audits for transparency.
– Restrictions on high-risk activities (e.g., derivatives trading, leveraged investments).
– Regular technology updates to meet evolving cybersecurity standards.
Ongoing Compliance
– Annual license fees and compliance reports detailing financial status, reserve assets, and major changes.
– Mandatory display of license number on all stablecoin-related materials for market transparency.
– Prior notification to HKMA for significant changes (e.g., corporate structure, reserve asset allocation, system upgrades).
– Immediate reporting of potential insolvency, payment cessation, or inability to meet obligations, with failure constituting an offense.
Prohibitions and Penalties
The Stablecoin Ordinance strictly prohibits any person from engaging in regulated stablecoin activities or offering specified stablecoins without a license, or from representing themselves as doing so. Violating these provisions without reasonable excuse constitutes an offense, punishable on summary conviction by a fine of HK$500,000 and imprisonment for 2 years, with an additional daily fine of HK$10,000 for ongoing violations, or on conviction on indictment by a fine of HK$5,000,000 and imprisonment for 7 years, with a further daily fine of HK$100,000 for continuing offenses. Additionally, any person who, directly or indirectly, employs fraudulent or deceptive means or engages in practices that are fraudulent or deceptive in transactions involving specified stablecoins commits an offense. Such offenses carry penalties of up to HK$1,000,000 and 3 years’ imprisonment on summary conviction, or up to HK$10,000,000 and 10 years’ imprisonment on conviction on indictment.
