The passage of the (Hong Kong Stablecoin Regulation) in the Legislative Council on May 21, 2025, marks a critical turning point for regulation. The regulation was gazetted on May 30, 2025, and is set to take effect on August 1, 2025. Activities involving fiat-backed stablecoins (FRS) issued from outside Hong Kong or involving Hong Kong dollars are no longer in the gray area of crypto finance but are included in a formal and institutionally regulated legal framework. This regulation reflects a deliberate recalibration: it aims to position Hong Kong as a compliant, forward-looking virtual asset hub capable of supporting the next generation of programmable finance under the rule of law. This article analyzes the key provisions of the regulation, its strategic positioning, practical impact, and clarifies its distinctions from related technologies such as real-world asset tokenization (RWA).
Legal infrastructure
This legislation constructs a complex semantic system concerning digital value. Stablecoins are not only defined as functional tools but are also delineated from technological, economic, and legal dimensions: they must have cryptographic safeguards, serve as a medium of value storage or exchange, and operate on distributed ledger technology (DLT). 'Specific stablecoins' further restrict the scope to tokens pegged to official currencies or other units approved by the Hong Kong Monetary Authority ('Monetary Authority').
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 regulatory coverage while minimizing regulatory arbitrage based on geography or activity type.
The principle of fiat backing is core. The regulation clearly stipulates that any 'specific stablecoin' must be fully redeemable for its pegged fiat currency, especially the Hong Kong dollar. This is not only a mechanical requirement but a fundamental safeguarding mechanism. Fiat backing ensures that stablecoins can operate as a trusted monetary tool rather than as speculative crypto assets. The Monetary Authority requires that reserve assets must be high-quality, liquid assets (such as cash, short-term government bonds) and must be denominated in the same fiat currency to which the stablecoin is pegged. This move eliminates the risk of currency mismatch, where differing reserve asset currencies from the stablecoin currency could lead to value depreciation. Additionally, it isolates users from exposure to volatility contagion risks—namely, the impact on the stablecoin market from panic selling triggered by the plummeting of non-pegged crypto assets.
The regulation explicitly prohibits using highly volatile or illiquid assets as a pegging basis, such as real estate tokens, commodity baskets, or mixed asset indices. If tokens cannot be clearly redeemed for fiat currency and lack clear fiat backing, they are not considered stablecoins and cannot enjoy legal protection. This approach effectively prevents regulatory arbitrage and stops financial engineering from blurring the lines between asset-backed securities and monetary instruments, reflecting Hong Kong's prioritization of financial stability over speculative or synthetic innovations.
Licensing framework
The regulation introduces a comprehensive prudential licensing system, emphasizing the systemic importance of stablecoin issuers. Key requirements include:
Capital baseline: The minimum paid-up capital is HKD 25 million.
Reserve structure: Issuers must maintain high-quality, liquid reserve assets (such as cash, short-term government bonds) corresponding 1:1 with circulating stablecoins.
Isolation and legal protection: Reserve assets must be placed in a trust or similar closed mechanism, and cannot be used for other creditors in bankruptcy.
Redemption mechanism: A mechanism must be in place to ensure real-time fulfillment of redemption requests at face value; delays or additional fees constitute legal violations.
Governance review: The appointment of controlling shareholders, directors, and stablecoin managers must be approved by the Monetary Authority and must continuously meet the 'appropriate person' standards and disclosure obligations.
Licensed entities must also continuously fulfill related obligations, including paying annual fees, reporting significant changes, and providing annual compliance reports.
Moreover, on June 6, the Financial Secretary announced that unlicensed issuers are allowed to offer non-regulated stablecoin offers to professional investors as defined under the (Securities and Futures Ordinance), retaining some practical space without crossing regulatory red lines.
Regulatory powers and enforcement tools
The Monetary Authority's regulatory powers are equipped with strong tools:
Investigation powers: Authorized investigators may request documents, conduct on-site inspections, and require sworn statements.
Sanction mechanism: The regulation grants the Monetary Authority multi-tiered sanction powers, including fines, revocation or cancellation of licenses, public warnings, confiscation orders, and appointment of statutory managers; the Monetary Authority has also conducted public consultations on detailed regulatory requirements under the regulation, focusing on core compliance provisions related to anti-money laundering and counter-terrorist financing, laying the groundwork for future law enforcement.
Management intervention:The Monetary Authority may appoint statutory managers to take over struggling licensed entities—this was originally a tool reserved for systemic banks.
Adjudication mechanism: An independent 'stablecoin adjudication office' is responsible for judicial review of sanction decisions, license approvals, and investigative actions.
Prohibited actions and criminal liability: Clarifying legal boundaries
The regulation explicitly lists activities that actors in the virtual asset market must not engage in, enhancing legal certainty and strengthening market discipline. Key prohibitions include:
Unlicensed operations (Article 9): Engaging in regulated stablecoin activities (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 appropriate licensing constitutes an independent criminal offense.
Advertising restrictions (Article 10):If the party is unlicensed or not exempt, publishing or preparing to publish advertisements indicating their participation in stablecoin activities or issuance of stablecoins constitutes a crime.
Fraud and misleading practices (Article 11):Any attempt to commit fraud, mislead, or false advertising regarding stablecoin transactions constitutes a crime, including false statements about reserve support, redemption rights, or relationships with licensed entities.
Inducement offenses (Article 12): Inducing others to purchase, dispose of, subscribe to, or underwrite specific stablecoins through false statements or disregard for the truth constitutes a criminal offense.
Transitional provisions
The regulation is set to take effect on August 1, 2025, and includes a time-limited transitional arrangement: stablecoin issuers that have been substantively operating in Hong Kong prior to the regulation's formal implementation may continue operating for six months if they submit a license application within the first three months. However, this is not an indefinite or unconditional exemption; unlicensed entities must exit the market or complete the authorization process as required.
International comparisons and Hong Kong's differentiated positioning
Compared to the EU (Regulation on Markets in Crypto-assets) (MiCA), Singapore (Payment Services Act 2019), and the state-level remittance licensing system in the United States, Hong Kong's regulation showcases unique regulatory choices:
Mandatory face value redemption obligation: Most jurisdictions (including MiCA and the US MTL system) allow redemption delays or issuer discretion, for example, MiCA allows redemption within five working days, whereas Hong Kong requires immediate fulfillment at face value.
Introduction of statutory management mechanisms:The rare 'pre-bankruptcy intervention power' in crypto asset legislation has been explicitly introduced in the Hong Kong regulation, originally a tool exclusive to banks.
Intersection with bank regulation: Capital requirements, reserve isolation, and 'appropriate person' standards blur the lines between token issuers and traditional financial intermediaries.
This strategic difference reflects Hong Kong's prioritization of stability and fiat anchoring, rather than merely pursuing market growth or issuer flexibility.
Real-world asset tokenization: key distinctions
A common misconception is that the compliance of stablecoins implies indirect recognition of RWA. This is not the case. The regulation does not provide a direct pathway or legal recognition for RWA projects.
Stablecoins operate within the framework of fiat currency, while RWA involves bringing domestic assets (such as real estate, stocks, bonds) into tokenized form. The regulation emphasizes that there are still regulatory gaps 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 regulation.
QFII restrictions:Unless obtained through traditional channels, QFII/RQFII licenses must not be used to tokenize domestic assets across borders.
Stablecoin license ≠ RWA legality: Obtaining FRS licensing does not equate to legal capability to engage in RWA business, especially for illiquid, unverified, or 'firewall' status assets.
RWA projects must address their own legal challenges. Stablecoins may serve as payment or collateral tools in the RWA ecosystem, but they do not resolve the core legal issues regarding the cross-border circulation of assets.
Practical impact and industry adjustments
The new regulations will fundamentally change how virtual asset businesses operate in Hong Kong. Both issuers and investors must reassess their strategies, partnerships, and legal risks:
Issuers: No longer is it the era of quickly launching products. Issuance of stablecoins requires robust financial governance, genuine monetary backing, and clear legal responsibilities. The capital requirement starts at HKD 25 million, along with audit costs, reserve checks, and real-time redemption systems, significantly raising the bar. Unlicensed issuance is no longer a 'risk' but a criminal offense.
Banks and trust institutions:Naturally, they may serve as reserve custodians, compliance verifiers, and risk managers, and may develop services such as stablecoin treasury management and KYC support in the future, but they must also upgrade their systems to support tokenized transactions and assess legal responsibilities.
Investors:Enhanced protections, reduced choices. Mandatory redemption rights and reserve isolation have increased investor confidence; although initial stablecoin options may decrease, in the long term, it will be easier to identify truly compliant, fiat-backed stablecoins.
Global platforms:No longer can stablecoins be offered to Hong Kong as an afterthought. Under the new regulations, exclusive compliance strategies must be established. Unlike the EU MiCA passporting system, Hong Kong does not recognize external licenses. Promoting or providing asset basket-pegged tokens to Hong Kong users is very likely to violate advertising laws.
Developers and DeFi builders: Technology cannot transcend law. Any protocol development interacting with fiat stablecoins must prioritize compliance from the outset and embed a system for verifying the status of stablecoin issuers.
Conclusion
Hong Kong's stablecoin regulation is a deliberate strategic choice: to incorporate crypto finance into a system of institutional accountability. By integrating licensing, regulation, and enforcement into 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 rigorous audits, reserve checks, and ongoing regulatory dialogue. Those who adapt will not only survive but will shape the future of compliant digital finance in Asia.
But deeper questions remain: 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 unresolved rifts: 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 Hong Kong's core proposition: 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-evidence trust. Without trust, innovation will ultimately fail.
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Authors of this article: Bai Qian Jen, Huang Wenjing
