On June 6, 2025, the Hong Kong SAR government published the (Stablecoin Regulations (Effective Date) Announcement) in the gazette, clearly announcing that the (Stablecoin Regulations) (Chapter 656) will officially come into effect on August 1. This news has attracted widespread attention in the financial circle, marking a key step for Hong Kong in the field of digital asset regulation and setting an important milestone for the development of stablecoins and the digital asset ecosystem.
The belated 'tightening spell'
Stablecoins, as a special type of digital currency, aim to stabilize their price at a specific level, typically pegged to fiat currencies (such as the US dollar or Hong Kong dollar) or other assets. In the field of virtual assets, stablecoins are widely used as a medium of exchange, hedging tool, and means to generate returns due to their relatively stable value, with applications spanning cross-border payments, remittances, and decentralized finance among others. However, due to the lack of effective regulation, the stablecoin market has been rife with issues. Previously, some stablecoin projects experienced significant price fluctuations due to opaque reserve assets and poor management, resulting in huge losses for investors. The collapse of TerraUSD, for instance, triggered severe turmoil in the cryptocurrency market, highlighting the urgency of stablecoin regulation.
As an international financial center, Hong Kong has always sought to balance financial innovation and risk prevention. A few years ago, as the global stablecoin market rapidly developed, Hong Kong began to pay attention to this field and started researching related regulatory policies. After multiple rounds of policy exploration and extensive market consultations, the Hong Kong Legislative Council officially passed the draft (Stablecoin Regulations) on May 21 and published it in the gazette on May 30, making it officially a law. This process has been meticulously prepared and carefully considered; now that the regulations are about to take effect, they undoubtedly place a 'tightening spell' on Hong Kong's stablecoin market.
Why are there so many regulations and frameworks?
The core of the (Stablecoin Regulations) is to establish a licensing regulatory system for stablecoin activities. According to the regulations, anyone issuing fiat-backed stablecoins in Hong Kong during their business operations, or claiming to issue fiat-backed stablecoins pegged to the value of the Hong Kong dollar in Hong Kong or elsewhere, must apply for a license from the Financial Commissioner. This provision serves as a threshold, keeping those with insufficient strength and poor qualifications out.
Regarding the conditions for license applications, applicants must overcome multiple regulatory hurdles. First, they must maintain a sound value stabilization mechanism to ensure that the stablecoin is tightly linked to the value of the pegged asset and does not deviate significantly. Second, they must have the capacity for redemption assurance, meaning they can process holders' redemption requests at face value under reasonable conditions, ensuring the safety of investors' funds. Additionally, they need to establish a comprehensive compliance system covering anti-money laundering, risk management, information disclosure, and auditing.
In terms of market participation rights, the regulations also make clear distinctions. Only licensed institutions are allowed to sell fiat-backed stablecoins in Hong Kong, and retail investors can only purchase products from licensed issuers. To prevent fraud, Hong Kong has also implemented advertising controls, allowing only promotional information about licensed stablecoins to circulate. This series of regulations, from issuance to sale and promotion, comprehensively standardizes the stablecoin market, aiming to create a safe and transparent market environment for investors.
It is worth mentioning that the Financial Secretary has formulated the (Stablecoin Regulations (Announcement of Effective Date)), designating professional investors (as defined in Schedule 1, Part 1, Section 1 of the Securities and Futures Ordinance) as specified categories of persons, allowing specified stablecoins issued by persons who have not obtained a license under the (Regulations) to be offered to professional investors. This measure, to some extent, provides professional investors with more investment choices and injects more vitality into the stablecoin market.
How will the market react to this?
The impending effect of the (Stablecoin Regulations) has elicited mixed reactions in the market. For stablecoin issuers, this represents both challenges and opportunities. On one hand, stringent licensing requirements and regulatory conditions mean they need to invest more funds and energy to meet compliance requirements. For example, they need to establish more comprehensive risk management systems and increase transparency in information disclosure, which will undoubtedly increase operating costs. On the other hand, obtaining a license will enhance the issuers' credibility, helping to attract more investors. Some financially strong and compliance-conscious issuers, such as Standard Chartered Bank in collaboration with Anxin Group, the Hong Kong Telecom's proposed Hong Kong dollar stablecoin, and JD.com's JD-HKD, are expected to gain broader development space within the compliance framework.
From the investors' perspective, the implementation of these regulations provides them with more reliable investment protection. The reserve assets of licensed stablecoins must be independently managed and audited regularly, significantly reducing the risk of 'air coins'. For retail investors, they can only invest in products from licensed issuers, which to some extent avoids the risk of investing in non-compliant projects. For professional investors, while they can access unlicensed issued stablecoins, they must also assess risks more cautiously.
At the industry level, the implementation of the (Stablecoin Regulations) will push Hong Kong's stablecoin market into a new stage of development. It will eliminate smaller companies with weak financial strength and non-compliance, enhancing the credibility of the entire industry. In the future, as the application for licenses opens, the market is expected to welcome a batch of compliant stablecoin products, attracting more institutional investors to participate and further promoting the prosperous development of Hong Kong's stablecoin market.
Based on the present and looking towards the future, how will the financial blueprint of Hong Kong be drawn?
The implementation of the (Stablecoin Regulations) has far-reaching strategic significance for Hong Kong's financial market. In the short term, it will provide appropriate regulations for Hong Kong's stablecoins and digital asset ecosystem, promoting healthy market development. With the launch of compliant stablecoins, it is expected to attract more innovative enterprises and investors to Hong Kong, further enhancing Hong Kong's competitiveness in the digital asset field.
In the long term, this initiative will help consolidate Hong Kong's position as an international financial center. In the context of increasingly fierce global competition for digital assets, Hong Kong demonstrates its leading advantages in financial innovation and regulation by establishing a comprehensive regulatory framework. Leveraging its status as an international financial hub, Hong Kong can promote the widespread use of compliant stablecoins pegged to the Hong Kong dollar or RMB in cross-border trade and offshore financial markets, aiding the internationalization of the RMB.
In addition, the legalization of stablecoins will have a positive impact on other areas. For example, in the tokenization of real-world assets (RWA), stablecoins provide price anchoring for RWA transactions, enhance market liquidity, and help facilitate the issuance of RWA projects by mainland enterprises in Hong Kong. In the field of cross-border payments, stablecoins can enable real-time fund transfers, significantly shorten transaction cycles, and reduce transaction costs, especially benefiting cross-border e-commerce and migrant worker groups.
However, we should also recognize that there are still challenges after the regulations come into effect. For instance, how to ensure effective regulatory enforcement to prevent regulatory arbitrage; how to maintain market innovation while regulating, etc. The financial regulatory authorities in Hong Kong need to continuously summarize experiences and improve regulatory measures in practice.
On August 1, with the official implementation of the (Stablecoin Regulations), Hong Kong's stablecoin market will enter a new development phase. It not only brings new opportunities to Hong Kong's digital asset industry but also provides a referable example for global stablecoin regulation. In future developments, we have reason to expect Hong Kong to continue to play a leading role in the digital finance sector, writing even more exciting financial chapters.