Hong Kong’s Stablecoins Bill: What It Means and Why It Matters

Hong Kong’s Stablecoins Bill establishes a comprehensive regulatory framework to foster a secure, transparent, and innovative stablecoin ecosystem, positioning the SAR as a leading hub for digital asset development in Asia.  

On May 21, 2025, the Hong Kong Legislative Council passed the Stablecoins Bill (hereinafter, the “Bill”), marking a decisive shift toward a regulated stablecoin ecosystem in Asia’s premier international financial center. The proposed framework targets fiat-referenced stablecoins (FRS), digital tokens pegged to official currencies and extends to those issued both within and outside Hong Kong but referencing the Hong Kong dollar. 

Under the Bill, issuers must secure a license from the Hong Kong Monetary Authority (HKMA) and comply with stringent requirements, such as maintaining fully backed reserve assets, ensuring transparent redemption at par value, segregating client funds, and implementing robust anti‑money laundering and risk controls. The rules also prohibit unlicensed marketing and issuance to retail investors, reinforcing the commitment to uphold financial integrity. 

The Bill, slated to take effect on August 1, 2025, serves as a cornerstone in Hong Kong’s digital asset strategy. It complements existing licensing frameworks for virtual-asset trading platforms and custodial services, and reinforces the territory’s ambition to host secure, compliant stablecoin innovation. 

Given Hong Kong’s role as a financial gateway to mainland China, the Bill may also have implications for cross-border digital finance, potentially influencing regulatory and business developments beyond the region. 

In this article, we examine the background, scope, licensing requirements, operational standards, and regulatory implications of Hong Kong’s new Stablecoins Bill, highlighting its significance for industry stakeholders and the future of digital finance in both Hong Kong and the wider Chinese market. 

What are stablecoins? 

Stablecoins are a type of cryptocurrency designed to maintain a stable value by being pegged to a reserve asset, typically a fiat currency like the US dollar, euro, or a commodity such as gold. Unlike traditional cryptocurrencies such as Bitcoin or Ethereum, whose prices can be highly volatile, stablecoins aim to offer price stability, making them more practical for everyday use. 

There are three main types of stablecoins: 

• Fiat-referenced stablecoins (FRS): Backed 1:1 by fiat reserves (for example, US$1 per coin). Examples: USDT (Tether), USDC (USD Coin). 

• Crypto-backed stablecoins: Collateralized by other cryptocurrencies, often over-collateralized to account for volatility. Example: DAI (backed by Ethereum and other crypto assets). 

• Algorithmic stablecoins: Use smart contracts to regulate supply and demand, keeping prices stable without collateral. Example: Frax (partially algorithmic). 

Among them, FRS has emerged as a key pillar within the broader ecosystem of digital finance. These digital tokens are increasingly viewed as essential tools in facilitating fast, low-cost, and efficient payment solutions.  

Beyond payments, they are poised to become foundational components in the infrastructure of tokenized finance, where traditional financial assets are digitized and transacted via blockchain technologies.  

Why did Hong Kong issue the Stablecoins Bill? 

Hong Kong has set its sights on becoming a global hub for Web3 innovation, with a focus on fostering growth in blockchain, digital assets, and decentralized finance (DeFi). While these developments offer new opportunities, they also introduce complex regulatory challenges that require prompt and effective responses. 

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Recognizing the pivotal role of FRS in advancing tokenized finance and digital payments, the government has prioritized the creation of a regulatory framework to guide the responsible development. Stablecoins are viewed as a critical entry point into broader Web3 adoption, making their oversight essential to market confidence. The foundation of this regulatory approach is the principle of “same activity, same risk, same regulation,” which calls for consistent standards across both traditional and digital financial activities. The new Bill is Hong Kong’s legislative step toward aligning innovation with financial stability and consumer protection. 

Scope of Hong Kong’s new Stablecoins Bill

The proposed Bill introduces the concept of a “specified stablecoin,” referring primarily to FRS. The definition is deliberately broad to ensure the regulatory framework captures the core risks associated with these digital assets, especially those intended for use in payments and tokenized financial services. 

However, the Bill carefully excludes certain digital assets from this scope, such as: 

• Securities;  

• Stored value facilities (SVFs); 

• Central bank digital currencies (CBDCs); 

• Non-fungible tokens (NFTs); 

• In-game currencies; and  

• Other digital assets not designed for real-world payment use.  

Importantly, the Hong Kong Monetary Authority (HKMA) is granted the authority to adjust the scope through publication in the official Gazette. This means that, in the future, other forms of stablecoins, such as those linked to commodities, can be brought under regulation if deemed necessary, allowing the framework to adapt to market developments. 

Licensing regime for Hong Kong’s stablecoin issuers 

Who needs a license 

Under the Bill, any entity wishing to issue fiat-referenced stablecoins in or from Hong Kong must obtain a license from the HKMA. This requirement also applies to issuers of stablecoins pegged to the Hong Kong dollar, regardless of whether the issuance occurs inside or outside the city.  

In addition, firms that promote or market such stablecoins to Hong Kong residents, without proper licensing, are expressly prohibited from doing so, in an effort to close regulatory loopholes and prevent unregulated access. 

Regulated activities 

The Bill outlines a list of activities that fall within the regulatory perimeter, covering the issuance, management, and governance of FRS. These are designated as “regulated activities” and are subject to licensing and ongoing supervision.  

The HKMA also retains discretion to expand the list of covered activities to keep pace with emerging risks or business models in the evolving digital asset space. 

Licensing requirements 

To qualify for a license, stablecoin issuers must be either a locally incorporated entity or a recognized overseas financial institution with a physical branch presence in Hong Kong. They must also meet a minimum paid-up capital threshold of HK$25 million (US$3.18 million). Additionally, all controllers and senior managers must pass a fit-and-proper assessment to ensure integrity and competence. 

Once licensed, issuers will fall under the HKMA’s continuing supervisory oversight, including compliance monitoring, risk assessments, and enforcement actions as necessary. This framework is designed to provide both regulatory clarity and market confidence, ensuring that only credible and well-governed entities operate within Hong Kong’s stablecoin ecosystem. 

Operational and prudential requirements 

Reserve asset management 

A cornerstone of the Bill is the requirement for full reserve backing. Issuers must maintain reserves equal to the full-face value of the circulating stablecoins, ensuring that holders can redeem them at par at any time. These reserves must meet strict criteria in terms of quality, currency denomination, and liquidity. Additionally, the assets must be held in segregated accounts under a statutory trust arrangement to protect user funds in the event of insolvency. 

Issuers are also subject to comprehensive reporting duties. They must provide daily reports to the HKMA, submit weekly summaries of their reserve status, and engage an independent third party to conduct regular audits. These provisions aim to reinforce transparency and prevent mismanagement of customer assets. 

Redemption mechanism 

The Bill guarantees users the right to redeem stablecoins at their full value, minus a reasonable and disclosed fee. Redemption requests must be processed within one business day, ensuring liquidity and user confidence in the convertibility of the digital asset. Issuers are required to make all terms and procedures related to redemption publicly available, contributing to greater consumer protection and clarity in transaction expectations. 

Governance and risk controls 

Stablecoin issuers must demonstrate strong internal governance and risk management capabilities. All key personnel, including controllers and senior management, must pass a fit-and-proper assessment. Moreover, the Bill requires certain executive functions to be performed by individuals who reside in Hong Kong, thereby anchoring decision-making and accountability within the local jurisdiction. 

In terms of compliance, licensees must implement risk-based measures to address anti-money laundering (AML) and counter-financing of terrorism (CFT) obligations. The HKMA will assess these programs as part of its supervisory oversight.  

For issuers that are not already regulated banking institutions, the Bill imposes limitations on engaging in unrelated business activities, helping to reduce operational risks and focus management attention on core obligations related to stablecoin issuance and redemption. 

Disclosure and transparency 

The Bill places significant emphasis on disclosure to foster market confidence and protect investors in the evolving stablecoin ecosystem. Issuers are mandated to maintain a high level of transparency through the following key requirements: 

White paper publication

Every stablecoin issuer must publish a comprehensive white paper prior to launch. This document should clearly outline the stablecoin’s features, operational mechanics, reserve management, redemption policies, governance structure, and associated risks.  

The white paper serves as the foundational disclosure to inform users and regulators alike. 

Ongoing disclosures

Licensees are required to provide continuous updates on their operations, including but not limited to: 

• Material changes in business activities or financial condition; 

• Any conflicts of interest that may affect users; 

• Procedures for handling consumer complaints and dispute resolution; and 

• Periodic reports on reserve adequacy and audit outcomes. 

These ongoing disclosures help maintain a transparent operational environment, allowing stakeholders to make informed decisions and enhancing overall market integrity. 

Licensing terms and control changes 

The regulatory framework introduces a flexible yet rigorous approach to licensing and corporate governance to maintain regulatory oversight and operational stability: 

• License duration and conditions: Licenses granted under the Bill are generally open-ended, providing stablecoin issuers with operational continuity.  

• Changes in control: Any proposed change in control or ownership of a licensed issuer requires prior regulatory approval. This includes situations where an individual or entity gains significant influence over the company’s management or operations. The Bill defines “controllers” broadly to capture all key stakeholders who could impact the issuer’s governance or strategic direction. 

• Approval process and timelines: Applications for changes in control must be submitted to the HKMA, which will assess the suitability of proposed controllers based on fit-and-proper criteria.  

How Hong Kong’s Stablecoin Bill will impact mainland business 

Hong Kong’s new Stablecoin Bill is expected to have notable implications for Chinese Mainland businesses, particularly those engaged in cross-border finance, fintech, and digital innovation. 

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First, the bill creates a legal pathway for controlled experimentation with Web3 and blockchain-based financial applications. Since stablecoins are not permitted for use within the Chinese Mainland, Hong Kong’s regulated environment may serve as a testing ground or “regulatory sandbox” for Mainland companies to pilot stablecoin-based settlement and payment tools. This is especially relevant for enterprises involved in cross-border e-commerce, logistics, and supply chains, where efficiency and cost reduction are critical. 

Second, the bill has the potential to support the internationalization of the RMB. With clear rules in place, Hong Kong may eventually allow the issuance of RMB-referenced stablecoins under regulatory supervision. This would offer Chinese financial institutions and corporates a pathway to participate in global stablecoin ecosystems without compromising the Chinese Mainland’s strict domestic controls, aligning with Beijing’s broader strategy to expand offshore RMB usage. 

Third, the bill is likely to encourage Mainland businesses to set up or expand operations in Hong Kong. Fintech firms and platform companies could establish Hong Kong subsidiaries to legally issue or manage stablecoins, leveraging the city’s financial infrastructure and legal certainty. This may lead to more cross-border corporate structuring, where digital finance operations are headquartered in Hong Kong while support functions remain in the Chinese Mainland. 

Fourth, Hong Kong’s approach could serve as a reference model for future regulatory developments in the Chinese Mainland. Although the Mainland has banned crypto-related activities, it may closely observe Hong Kong’s regulatory framework to assess how risks related to stablecoins, such as capital flows, consumer protection, and systemic risk, are managed in a controlled environment. 

That said, however, businesses in the Chinese Mainland that engage with Hong Kong-based stablecoin issuers or platforms may face new compliance obligations. These could include adhering to AML and know-your-customer (KYC) requirements, as well as navigating transaction reporting mechanisms. While this increases operational complexity, it also raises the bar for trust and institutional participation. 

Outlook and way forward  

The enactment of the Stablecoins Bill marks a significant milestone in Hong Kong’s journey toward establishing a credible, innovative, and well-regulated digital asset ecosystem. By introducing a comprehensive regulatory framework, the Bill not only reinforces market integrity but also positions Hong Kong as an attractive hub for stablecoin issuance and broader Web3 development. 

For industry participants, the new regime presents clear opportunities alongside heightened compliance responsibilities. Licensed stablecoin issuers will gain direct market access to retail investors, fostering greater participation and innovation within the digital payments space. At the same time, enhanced requirements for asset backing, segregation, and restrictions on unlicensed marketing are expected to strengthen investor confidence and consumer protection. 

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Regulatory clarity provided by the Bill offers much-needed legal certainty for fintech firms, exchanges, custodians, and other stakeholders operating in this evolving landscape. However, issuers and service providers should be prepared for increased compliance costs, particularly related to AML, counter-terrorist financing CFT, cybersecurity, and governance measures. Given the rapid growth of stablecoins globally, with trading volumes reportedly exceeding those of major card networks in 2024, Hong Kong’s forward-looking stance is well-timed to attract both international stablecoin issuers and institutional players seeking a regulated foothold in Asia. 

Firms aiming to engage with stablecoins in Hong Kong are advised to take proactive steps by conducting comprehensive reviews of their reserve management, risk controls, and client onboarding processes. Early preparation for licensing applications, supported by expert legal and compliance advice, will be essential to navigate the new regulatory environment successfully and capitalize on the opportunities ahead. 

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