A licensing framework for stablecoin issuers has been introduced through the new law, as efforts are being made by the city to strike a balance between fostering crypto innovation and ensuring investor protection.
On Wednesday, Hong Kong passed legislation establishing a licensing regime for fiat-referenced stablecoins, advancing its goal of becoming a digital asset hub while addressing concerns about investor protection and financial stability.
The city’s Legislative Council enacted new legislation requiring fiat-referenced stablecoin (FRS) issuers to obtain a license from the Hong Kong Monetary Authority (HKMA).
Licensees must adhere to a range of requirements, including managing reserve assets, redeeming at par value, segregating client funds, implementing anti-money laundering controls, fulfilling disclosure obligations, and meeting fitness and propriety standards.
In a statement, Christopher Hui, Secretary for Financial Services and the Treasury, emphasized that the Ordinance aligns with the principle of “same activity, same risks, same regulation,” and highlighted the adoption of a risk-based approach to strengthen the regulatory framework.
He further added that this approach not only aligns with international regulatory standards but also lays a strong foundation for Hong Kong’s virtual asset market.
Hong Kong Moves Forward with Crypto-Friendly Regulation
Hong Kong introduced the law as part of its effort to restore its reputation in the cryptocurrency sector and boost industry growth after the collapse of the fraudulent exchange JPEX in 2023.
The shift took place as Hong Kong began embracing cryptocurrency following years of reluctance, with authorities now working to carefully balance the promotion of innovation in digital assets against the need to protect retail investors from potential exploitation.
Under the newly implemented regime, only licensed institutions can issue fiat-referenced stablecoins (FRS) in Hong Kong, and promotional activities aimed at retail investors must involve officially licensed offerings.
Even during the six-month grace period before enforcement begins, the law prohibits the publication of unauthorized advertisements. The Hong Kong Monetary Authority (HKMA) will also conduct additional consultations on specific regulatory requirements.
The stablecoin market in Hong Kong remains relatively limited compared to global transaction volumes.
Justin d’Anethan, head of sales at token advisory firm Liquifi, acknowledged the newly enacted legislation as providing concrete benefits to issuers, including clear guidelines on licensing, redemption duties, reserve holdings, and a framework aligned with traditional finance. However, he candidly noted that Hong Kong still represents a relatively minor player in the broader global stablecoin market.”
Tether has remained the dominant cryptocurrency utilized by the many over-the-counter (OTC) trading shops operating in Hong Kong. Concurrently, U.S. dollar-pegged digital assets available in American markets have continued to serve as the primary drivers of the global stablecoin ecosystem.
Hong Kong introduced its legislation just as the U.S. Senate advanced its own stablecoin regulation. The GENIUS Act recently cleared a key procedural vote and aims to establish a comprehensive federal legal framework for stablecoin issuance in the United States. Before becoming law, the bill must pass the House of Representatives and reach President Trump, who is expected to sign it.
According to d’Anethan, many viewed Hong Kong, Singapore, and Dubai as leaders in advancing progressive crypto regulation. However, he noted that the narrative has shifted over the past six months. “The United States, previously viewed as hostile to digital assets, has unexpectedly emerged as the focal point of constructive regulatory developments supporting the crypto sector,” he remarked.
Hong Kong plans to implement the stablecoin ordinance later this year and will introduce transitional measures to give issuers sufficient time to adapt to the updated regulatory framework.
