Background Overview

On June 26, the Hong Kong government officially released the Digital Assets Development Policy Declaration 2.0, further clarifying Hong Kong's positioning as a global innovation center in the digital asset space, with regulatory stablecoins being a top priority. At the same time, the Hong Kong Monetary Authority (HKMA) is actively constructing a regulatory framework for fiat-referenced stablecoins (FRS) to ensure financial stability, protect user interests, and promote the healthy development of the virtual asset ecosystem. This forward-looking initiative presents new challenges and opportunities for FRS issuers seeking compliance and security.

As a global leading blockchain threat intelligence company, SlowMist provides integrated security solutions from threat discovery to threat defense, serving many leading or well-known projects worldwide. With deep professional expertise in smart contract security audits, blockchain application security audits, cryptocurrency anti-money laundering/counter-terrorism financing solutions, and emergency response, SlowMist is ready to offer comprehensive security audit services to FRS issuers to meet Hong Kong's regulatory requirements.

Core Points of Hong Kong FRS Regulation

The consultation paper released by the Hong Kong Financial Services and the Treasury Bureau (FSTB) clearly states that FRS poses direct risks to currency and financial stability due to its potential as a means of payment, thus requiring strict regulation. Main regulatory requirements include, but are not limited to:

  • Full Reserve Support: FRS must be backed 1:1 by high-quality, highly liquid reserve assets, prohibiting algorithmic stablecoins.

  • Isolation and Custody of Reserve Assets: Reserve assets must be separated from the issuer's other assets and be held by a licensed institution.

  • Robust Risk Management: Issuers are required to have comprehensive strategies and controls to effectively manage investment and liquidity risks.

  • Disclosure and Reporting: Regular disclosure to the public of the FRS circulation volume, reserve asset value, and composition, verified by independent audits is required.

  • Cybersecurity and Smart Contract Robustness: Regulators clearly require external independent audits of FRS issuance businesses to confirm their cybersecurity and smart contract robustness.

  • Anti-Money Laundering/Counter-Terrorism Financing (AML/CFT): FRS issuers must design and implement robust controls to prevent and combat money laundering and terrorist financing activities.

These regulatory requirements indicate that the Hong Kong regulatory framework not only focuses on financial compliance but also places a high emphasis on technical security and operational safety.

Assisting FRS issuers in achieving security compliance

Since its establishment in 2018, SlowMist has focused on building a secure ecosystem for blockchain and has collaborated with many well-known projects and exchanges such as OKX, Binance, HashKey Exchange, OSL, MEEX, BGE, BTCBOX, Bitget, BHEX, YAX, and YuanCoin for compliance security audits. In 2023, we officially launched HKSFC compliance security audit services, accumulating rich practical experience. Our professional capabilities and service offerings align closely with Hong Kong's regulatory requirements for FRS (see reference links), providing practical compliance support and security assurance for relevant issuers.

1. Smart Contract Security Audit

  • Core Competence: SlowMist employs a combination of 'white box' (manual analysis combined with tools), 'grey box' (tools and fuzz testing), and 'black box' (simulating the attacker's perspective) audit methods to deeply audit the minting/burning logic, on-chain reserve management, access control, redemption processes, calculation correctness, as well as common vulnerabilities such as reentrancy attacks and flash loans of stablecoin contracts.

  • Compliance Value: Meeting the independent audit requirements of the Hong Kong Financial Services and the Treasury Bureau for 'smart contract robustness', ensuring the underlying code of FRS contract agreements is secure and reliable, effectively preventing decoupling risks and asset theft.

2. Operations and Infrastructure Security Audit

  • Core Competence: Audit key management security, operational system security, and data security, while also evaluating the effectiveness of security emergency plans and incident response.

  • Compliance Value: Meeting the requirements of the Hong Kong Financial Services and the Treasury Bureau for 'sufficient security and internal controls to ensure data and system security and integrity' and 'robust emergency plans'.

3. Anti-Money Laundering/Counter-Terrorism Financing Compliance and Risk Assessment

  • Core Competence: SlowMist provides professional cryptocurrency anti-money laundering solutions (SlowMist AML) and cryptocurrency tracking platform (MistTrack) that have supported numerous law enforcement agencies, financial regulatory bodies, and compliance departments of Web3 projects in their anti-money laundering capabilities. We can assist in assessing the anti-money laundering control measures, transaction monitoring, and sanctions entity screening of FRS issuers in their design, utilizing a powerful on-chain wallet address labeling database and malicious address database for risk fund identification.

  • Compliance Value: Ensuring FRS issuers comply with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and the guidelines of the Hong Kong Monetary Authority, effectively preventing and combating illegal financial activities, and maintaining the trust and regulatory status of FRS.

4. Continuous Security and Monitoring Services

  • Core Competence: SlowMist provides the MistEye integrated monitoring system for on-chain and off-chain, threat intelligence sharing, incident response support, and regular re-audits and risk assessment services. The Web3 project security practices we previously shared can also assist FRS issuers in building a secure system.

  • Compliance Value: Meeting the requirements of the Hong Kong Financial Services and the Treasury Bureau for regular risk assessments of FRS issuers (at least annually) and ongoing risk management, ensuring continued security compliance in a dynamically changing blockchain environment.

Summary

The regulatory framework for stablecoins issued by the Hong Kong Financial Services and the Treasury Bureau marks an important step for Hong Kong in the global virtual asset space. This framework sets clear requirements for technology, security, and anti-money laundering/counter-terrorism financing compliance, highlighting the indispensable nature of professional blockchain security services.

SlowMist not only assists project teams in meeting the technical audit requirements of regulatory authorities but also provides comprehensive services covering on-chain smart contracts, off-chain operational infrastructure, and ongoing compliance monitoring, ensuring overall security for FRS issuers. With profound expertise in smart contract security audits, blockchain application security audits, cryptocurrency anti-money laundering/counter-terrorism financing solutions, and emergency response, SlowMist possesses unique advantages in serving the Hong Kong FRS market. Interested project teams are welcome to contact the SlowMist security team at [email protected] for consultation and collaboration in building a safer and more robust blockchain ecosystem.

Reference Links

[1]https://www.kwm.com/hk/zh/insights/latest-thinking/stablecoins-hk-proposes-licensing-and-regulatory-regime-for-issuers.html

[2]https://www.fstb.gov.hk/fsb/tc/publication/consult/doc/Stablecoin_consultation_paper.pdf

[3]https://gia.info.gov.hk/general/202506/26/P2025062500847_500091_1_1750909590100.pdf

[4]https://github.com/slowmist/Web3-Project-Security-Practice-Requirements/blob/main/README_zh_CN.md