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.
Legislation was passed by Hong Kong on Wednesday establishing a licensing regime for fiat-referenced stablecoins, marking a step forward in its ambition to become a digital asset hub while addressing concerns regarding investor protection and financial stability.
The new legislation, enacted by the city’s Legislative Council, mandates that fiat-referenced stablecoin (FRS) issuers be licensed by the Hong Kong Monetary Authority (HKMA).
A range of requirements must be adhered to by licensees, including reserve asset management, redemption at par value, segregation of client funds, anti-money laundering controls, disclosure obligations, and standards related to fitness and propriety.
In a statement, it was stated by Christopher Hui, Secretary for Financial Services and the Treasury, that the Ordinance is being aligned with the principle of “same activity, same risks, same regulation,” with an emphasis placed on adopting a risk-based approach to foster a strong regulatory framework.
It was further added by him that this approach is not only aligned with international regulatory standards but is also seen as establishing a strong foundation for the virtual asset market in Hong Kong.
Hong Kong Moves Forward with Crypto-Friendly Regulation
The law has been introduced as part of Hong Kong’s initiative to restore its reputation in the cryptocurrency sector and to stimulate industry growth following the downfall 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, the issuance of fiat-referenced stablecoins (FRS) in Hong Kong will be permitted exclusively by licensed institutions, and promotional activities targeting retail investors will be restricted to offerings that have obtained official licensing.
Even during the six-month grace period prior to the start of enforcement, the publication of unauthorized advertisements will be prohibited. Additional consultations on specific regulatory requirements will be conducted by the Hong Kong Monetary Authority (HKMA).
The stablecoin market in Hong Kong has been observed to remain relatively limited when compared to global transaction volumes.
“The newly enacted legislation has been acknowledged by Justin d’Anethan, head of sales at token advisory firm Liquifi, 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.
Legislation in Hong Kong has been introduced at a time when the U.S. Senate is also progressing with its own stablecoin regulation. The GENIUS Act, which has recently passed a significant procedural vote, is intended to establish a comprehensive federal legal framework for stablecoin issuance in the United States. Before it can be enacted, the bill must still be approved by the House of Representatives and presented to President Trump, who is anticipated to sign it into law.
According to d’Anethan, regions such as Hong Kong, Singapore, and Dubai were previously regarded as leaders in 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.
The stablecoin ordinance enacted by Hong Kong is anticipated to be implemented later this year, with transitional measures being introduced to allow issuers sufficient time to adapt to the updated regulatory framework.
