Taking effect in August 2025, the new legislation will bring issuers of fiat-referenced stablecoins into the regulatory perimeter.
On 21 May 2025, the Legislative Council of Hong Kong passed the Stablecoin Bill, which was then gazetted as the Stablecoins Ordinance. It will come into effect on 1 August 2025.
The Hong Kong Monetary Authority (HKMA) has also issued consultations for its proposed (i) Guideline on Supervision of Licensed Stablecoin Issuers (Supervision Guideline) and (ii) AML/CFT Requirements for Regulated Stablecoin Activities and Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Stablecoin Issuers) (together, AML/CFT Guideline), and further consultations on other aspects of the regime may follow in due course.
Altogether, these developments represent Hong Kong’s final steps towards activating its regulatory regime for issuing and offering stablecoins.
The Stablecoins Ordinance follows the consultation launched by the HKMA and the Financial Services and the Treasury Bureau in 2023 (see Latham’s blog post), which outlined the government’s proposal to establish a legislative framework governing stablecoin issuers.
Other jurisdictions and international standard-setting bodies have been bringing stablecoins within the regulatory perimeter. For example, the European Union’s rules governing stablecoins (categorised as asset-referenced tokens and e-money tokens) in the Markets in Crypto-Assets Regulation came into effect on 30 June 2024, while on 17 July 2024, the Basel Committee published its final disclosure framework for banks’ cryptoasset exposures and targeted amendments to its cryptoasset standard. Other jurisdictions, like the United States, Singapore, and the United Kingdom, are also accelerating their efforts to establish their own stablecoin regimes.
This blog post summarises the framework under the Stablecoins Ordinance, and sets out a summary of the HKMA’s proposed expectations for stablecoin issuers under the consultation documents.
Stablecoins Ordinance: Licensing Obligation
Under the Stablecoins Ordinance, any person who issues a fiat-referenced stablecoin (FRS) in Hong Kong (or actively markets such FRS to the Hong Kong public), or issues an FRS that purports to reference the Hong Kong dollar, will need to be licensed with the HKMA.
The HKMA plans to issue guidelines on the factors it will consider when determining whether an FRS is issued in Hong Kong, which are expected to include: the jurisdiction of incorporation, where the staff are located, and where the minting, burning, and redemption and reserve asset management take place.
The HKMA will only be permitted to authorize a licensee that is a company incorporated in Hong Kong, unless the applicant is a Hong Kong-licensed bank (in which case it can be incorporated outside of Hong Kong).
Regulatory Framework for Stablecoin Issuers
Schedule 2 of the Stablecoins Ordinance sets out the minimum criteria for licensing of a stablecoin issuer. In the consultation on the Supervision Guideline, the HKMA provides additional guidance about its expectations for stablecoin issuer licensees.
We have set out some of the key aspects of the regulatory framework below for the licensees:
Financial Resources
- Under the Stablecoins Ordinance, the licensee must have adequate financial resources and liquid assets to meet its obligations, and shall have either paid-up share capital of at least HK$25 million or another amount approved by the HKMA. This requirement does not apply to licensed banks.
- In the Supervision Guideline, the HKMA set out its expectation that the licensee will have sufficient financial resources for its activities and obligations, including for an orderly exit. In addition, the financial resources should be dedicated to activities and should not be used for any dealing with the licensee’s related companies or parties.
Reserve Assets Management
- Under the Stablecoins Ordinance, the licensee will be required to maintain a segregated “reserve asset pool” that has a market value equal to the par value of the outstanding stablecoins in circulation. The assets should be held in the same currency as the stablecoin, and should be of high quality and high liquidity with minimal investment risks. In addition, the reserve asset pool should be adequately protected against creditor claims and separated from the licensee’s other funds.
The licensee must establish policies and controls for managing reserve assets so that redemption requests are satisfied without undue delay, and for regular independent attestation and audit. They must also make adequate and timely disclosure to the public on their reserve assets management policy, risk assessment, composition and market value of reserve assets, and results of attestation and audit. Where activities are conducted by third parties, additional controls are required.
- In the Supervision Guideline, the HKMA noted that effective trust arrangements will need to be put in place, alongside contractual agreements with qualified custodians for the safekeeping of reserve assets. In practice, taking into account market risk, there should be appropriate over-collateralisation. Licensees should monitor and conduct regular reconciliation, and ensure a prudent approach to calculating reserve assets. In particular, the reserve assets should be bank deposits, marketable debt securities, cash receivables, similar investment funds, or other assets acceptable to the HKMA.
On a daily basis, the licensee will need to prepare statements on the par value of stablecoins and market value and composition of the reserve assets. Unless otherwise approved, the HKMA will expect weekly public disclosure and reporting on these statements. The licensee will need to engage a qualified auditor to perform attestation on regular basis acceptable to the HKMA, and disclose to the HKMA and to the public such reports. Financial and regular audits will also need to be conducted on reserve assets and reported to the HKMA.
Issuance, Redemption, and Distribution
- Under the Stablecoins Ordinance, each holder should have the right to redeem stablecoin without any unduly burdensome condition, and without a fee (unless reasonable). Unless consented to, the licensee must honor the redemption request as soon as practicable at par value (minus any reasonable fee). The holders should also have an exercisable right to claim against the reserve asset pool and licensee upon insolvency. The redemption rights and procedures should be disclosed to the public.
The issuance and distribution of the stablecoins should be done in the prudent and sound manner, having regard to the purpose, business model, and operational arrangement of the issue.
- In the Supervision Guideline, the HKMA provided additional guidance on how it will assess the reasonableness of the fees and conditions to be placed on redemption. Unless otherwise approved, the HKMA expects that valid redemption requests should be processed within one business day after the day of receipt.
In respect of issuance, the HKMA expects that if third parties will be distributing stablecoins or providing liquidity for them on secondary markets, the stablecoin issuer must ensure such arrangements will not affect soundness of the issue. If third parties offer stablecoins in Hong Kong, they must be permitted offerors. Customer onboarding must also comply with Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) measures.
Fitness and Propriety, Knowledge and Experience of Personnel, Corporate Governance
- Under the Stablecoins Ordinance, each chief executive, director, stablecoin manager (for licensed banks), and controller of the licensee must be a fit and proper person approved by the HKMA, and officers and managers must have the relevant knowledge and experience to discharge their duties. The obligation for the chief executive, director and controller to be approved by the HKMA does not apply to licensed banks.
- In the Supervision Guideline, the HKMA has stated that generally, at least one-third of the board members should be independent non-executive directors (INEDs) (other than for licensed banks) and their profile will be reviewed by the HKMA. Similar to other financial institutions, the HKMA will expect operational policies and procedures, controls, codes of conduct, compliance and audit functions, and conflict procedures to ensure proper corporate governance.
Prudential and Risk Management
- Under the Stablecoins Ordinance, the licensee is required to implement adequate and appropriate risk management policies and procedures for managing risks, including related to safety and integrity of data, fraud, operational disruption, and other security matters. Without consent, the licensee cannot deviate from such policies and procedures.
- In the Supervision Guideline, the HKMA has set out detailed expectations for licensees to manage their risks, which should cover credit, liquidity, market, technology, operational, reputational, and AML/CFT risks. Internal limits should be established for the various risks, and any breaches of those limits will be expected to be reported to the HKMA. In order to ensure the robustness of the portfolio, quarterly stress-testing of reserve assets is required alongside reporting of such results to the HKMA.
Given the importance of technology to stablecoins, the HKMA expects licensees to establish a technology risk management framework that ensures IT controls covering token management, account management, security management, wallet and private key management, and customer verification. The comprehensive guidance from the HKMA includes its expectations around the use of secure storage media for seeds and private keys, engaging a third-party entity to audit smart contracts, and planning for business continuity and exit.
Business Practices, Conduct, and Disclosure
- Under the Stablecoins Ordinance, the licensee is required to make adequate and timely disclosure to the public on reserve assets management policy, composition and value of reserve assets, and results of regular independent attestation and audit of its reserve assets. It must also publish a white paper in respect of each type of specified stablecoins issued on its website. Complaints handling and redress mechanisms also need to be established.
- In the Supervision Guideline, licensees are expected to establish robust information and accounting systems and record-keeping practices to comply with their reporting and disclosure obligations. An annual audited financial statement will need to be submitted to the HKMA.
The white paper must contain information about the licensee, stablecoin, and reserve assets management arrangement; issuance, redemption, and distribution mechanisms; and underlying technology of the stablecoins and risks associated with using the stablecoins. The HKMA must be notified before publication and making material changes to the white paper.
AML/CFT
Under the Stablecoins Ordinance, the licensee is required to implement AML/CFT systems to mitigate the risk of money laundering and terrorist financing in connection with its stablecoin activities. The licensee will be named as a “financial institution” under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615, Laws of Hong Kong) and be subject to the customer due diligence and other requirements which are imposed on banks, securities firms, and other similar institutions.
In the proposed AML/CFT Guideline, the HKMA sets out its expectations for the AML/CFT measures that licensees will be required to establish.
In particular, licensees will be expected to conduct customer due diligence measures on their customers, including persons that have a business relationship with the licensee and persons conducting an occasional transaction involving an amount equal to or above HK$8,000 (~US$1,000). As part of the stablecoin issuance and redemption process, when dealing with stablecoin holders, the licensee will be expected to determine whether the holder’s wallet address is a custodial or unhosted wallet address, and then ascertain whether the customer owns or controls said wallet address (e.g., through micropayments, message signing, or obtaining evidence such as statements of account).
For custodial wallets, the licensee will need to ascertain the identity of the institution providing such custodial wallet, and conduct due diligence measures on the institution before issuance of stablecoin (similar to virtual asset transfer counterparty due diligence measures imposed on virtual asset trading platforms). For unhosted wallets, the licensee will need to implement enhanced controls, such as: (a) conducting enhanced monitoring of stablecoin transfers with the unhosted wallet; (b) transfering stablecoins only to the unhosted wallets that the licensee has assessed to be reliable; and (c) where appropriate, imposing transaction limits.
Licensees are also expected to conduct ongoing monitoring to detect potential illicit activities, including screening stablecoin transactions and adopting technological solutions, such as blockchain analytic tools, to identify transactions involving wallet addresses associated with suspicious activities. They will also be expected to comply with the Travel Rule if they carry out transfers of stablecoins.
While licensees are not expected to conduct customer due diligence on non-customer stablecoin holders in possession of stablecoins in circulation, the HKMA does expect the licensee to undertake proportionate ongoing monitoring measures to prevent the stablecoin from being used for illicit activities. Such activities may include blacklisting wallet addresses connected with sanctioned persons or illicit activities, and/or confining the primary distribution and redemption of stablecoins to financial institutions and virtual asset service providers having adequate and effective AML/CFT controls.
Offering of Stablecoins in Hong Kong
Upon the Stablecoins Ordinance coming into effect, only certain Hong Kong-licensed entities, e.g., banks, securities firms, stored value facilities, and virtual asset trading platforms (Permitted Offerors), will be able to offer FRS in Hong Kong. Advertising unlicensed stablecoins will also be an offence.
As was noted during the consultation process, stablecoins which are not licensed by the HKMA will only be permitted to be offered by the Permitted Offerors to “professional investors” (i.e., non-retail investors). This exemption has been created by way of an exemption notice issued by the Financial Secretary, and will come into effect on the same day as the Stablecoins Ordinance.
Transitional Period
When the Stablecoins Ordinance comes into effect on 1 August 2025, there will be a six month transitional period. If an entity has been carrying on stablecoin activity in Hong Kong prior to the commencement period, it will be permitted to carry on such activities for six months, provided that it has applied for a licence within three months of the commencement date. After the licence application has been made, the HKMA can grant a provisional licence so that the applicant can continue to carry on its business until its application has been withdrawn, refused, or granted by the HKMA.
Any stablecoin issuers not operating in Hong Kong before the commencement date will be required to obtain a licence before conducting their activities.
In 2024, the HKMA announced a sandbox with three initial participants seeking to develop a stablecoin issuance business in Hong Kong. While local market participants show clear interest to obtain licensing under the new regime, uncertainty remains whether global stablecoin issuers will seek authorisation in Hong Kong.
Next Steps
The arrival of the stablecoin regime in Hong Kong has been long-heralded since the HKMA first issued its discussion paper in 2022. It provides certainty for not only stablecoin issuers, but also other virtual asset participants in Hong Kong that deal and offer stablecoins to their customers.
Given the extensive industry consultation, the HKMA is not expected to materially deviate from its proposals set out in the Supervision Guideline and the AML/CFT Guideline.
In parallel, the HKMA has noted that it intends to develop supplementary AML/CFT guidelines for other digital activities, such as offering stablecoins and provision of custodial services, with consultation expected later in 2025.
Stablecoin issuers intending to carrying on business in Hong Kong, or distribute stablecoins in Hong Kong after commencement of the Stablecoins Ordinance, should begin to assess their activities and operations so they can comply with the Hong Kong stablecoin regime when it comes into effect.
Latham & Watkins will continue to analyse and report on the new developments to the Hong Kong stablecoin regulatory framework.
