Law

In brief

• The ordinance mandates licenses for fiat-referenced stablecoin (FRS) issuers under the HKMA
• Issuers must meet reserve, redemption, AML, and risk management standards
• It comes as the U.S. Senate advances its own stablecoin framework

Hong Kong passed legislation on Wednesday creating a licensing regime for fiat-referenced stablecoins, advancing its goal of becoming a digital asset hub while responding to concerns over investor protection and financial stability.

The new law, passed by the city’s Legislative Council, requires FRS issuers to obtain a license from the Hong Kong Monetary Authority (HKMA). 

Licensees must comply with a range of requirements covering reserve asset management, redemption at par value, segregation of client funds, anti-money laundering controls, disclosure, and fitness and propriety standards.

“The Ordinance adheres to the ‘same activity, same risks, same regulation’ principle, with a focus on a risk-based approach to promote a robust regulatory environment,” Christopher Hui, Secretary for Financial Services and the Treasury, said in a statement.

“This is not only in line with international regulatory requirements, but also lays a solid foundation for Hong Kong’s virtual asset market,” he added.

Embracing crypto

The law is part of Hong Kong’s efforts to rehabilitate its crypto reputation and encourage the growth of the industry after the collapse of fraudulent exchange JPEX in 2023. 

Occurring just as Hong Kong pivoted to embracing crypto after years of hesitation, authorities are now attempting to strike a difficult balance between encouraging innovation in digital assets while ensuring retail investors are shielded from abuse.

Under the new regime, only licensed institutions can issue an FRS in Hong Kong, and only licensed offerings may be marketed to retail investors. 

Unauthorized advertisements will be banned, even during the six-month grace period before enforcement begins. The HKMA will consult further on detailed requirements.

The market for stablecoins in Hong Kong remains modest compared to global volumes.

 “The new bill gives issuers something tangible: clarity on licensing, redemption obligations, reserve requirements, and a framework that’s friendly to traditional finance,” Justin d’Anethan, head of sales at token advisory firm Liquifi, told Decrypt. “But let’s be candid, Hong Kong remains a smaller node in global stablecoin activity.”

Tether continues to be the preferred cryptocurrency in the numerous OTC trading shops in Hong Kong. At the same time, U.S. dollar-backed assets in American markets remain the leading force in the stablecoin sector worldwide.

Hong Kong’s legislation comes as the U.S. Senate advances its own stablecoin bill. The GENIUS Act, which recently cleared a key procedural vote, would create a nationwide legal framework for issuing stablecoins in the U.S. The act must still pass the House before reaching President Trump, who is expected to sign it into law.

“For a while, Hong Kong, Singapore, and to some extent Dubai, held the crown when it came to forward-leaning crypto policy. But the last six months flipped the script,” d’Anethan said. “The U.S., long seen as adversarial, became the unexpected epicenter of pro-crypto regulatory momentum.”

Hong Kong’s stablecoin ordinance is expected to come into effect later this year, with transitional provisions to help issuers adjust to the new regime.

Edited by Sebastian Sinclair

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