Hong Kong has introduced one of the world’s most comprehensive stablecoin regulatory frameworks, set to take effect on August 1.
Originally announced on May 21, the bill has caught the attention of the global payments community due to its wide-ranging coverage and strict requirements.
The Secretary for Financial Services and the Treasury, Christopher Hui, highlighted that the Ordinance follows the “same activity, same risks, same regulation” principle.
“This is not only in line with international regulatory requirements, but also lays a solid foundation for Hong Kong’s virtual asset market, which, in turn, promotes the sustainable development of the industry, protects users’ rights and interests, and strengthens Hong Kong’s status as an international financial centre,” said Hui.
A breakdown of the regulation
The new Stablecoins Ordinance means anyone issuing a Hong Kong dollar–linked stablecoin must get a licence from the nation’s central bank, the Hong Kong Monetary Authority (HKMA). This applies to stablecoins issued inside Hong Kong and those pegged to the Hong Kong dollar issued abroad.
Issuers have to keep full reserves in safe, liquid assets like cash or government bonds. These reserves must be kept separate from the company’s own money to protect users if the issuer runs into trouble.
Stablecoin holders can redeem their tokens at face value within one business day under normal conditions. This aims to help prevent sudden cash shortages and protect users.
Hong Kong’s law stops issuers from paying interest on stablecoins, though they can offer other types of rewards. This is different from other jurisdictions where stablecoins can earn interest, such as the US.
Only licensed institutions can issue stablecoins, and only those licensed tokens can be sold to regular investors. Adverts for unlicensed stablecoins are banned to help prevent scams.
The government also plans to regulate virtual asset trading platforms, over-the-counter services and custodians soon.
“The Ordinance has established a risk-based, pragmatic, and flexible regulatory regime. We believe that a robust and fit-for-purpose regulatory environment would provide favourable conditions to support the healthy, responsible, and sustainable development of Hong Kong’s stablecoin and the broader digital asset ecosystem,” said HKMA Chief Executive Eddie Yue.
A different approach
Compared to the US, where stablecoin regulation has faced criticism for lacking transparency and essential consumer protections, Hong Kong’s approach is more cautious and safety-focused.
Senator Elizabeth Warren notably criticised the US bill for ignoring basic safeguards which apply to other financial products. Ahead of the Senate vote on the country’s stablecoin regulation, she warned the legislation could even allow individuals convicted of fraud or money laundering to own stablecoin companies.
Hong Kong’s law, by contrast, imposes strict licensing requirements and safeguards designed to protect users and maintain stability. The ban on paying interest on stablecoins is one measure aimed at preventing risky practices which could threaten investor funds.
While these rules may limit certain business models, they also make the stablecoin market more attractive to traditional financial institutions. Many established banks are increasingly interested in stablecoins but prefer a regulatory environment which prioritises stability and transparency.
By emphasising risk management and consumer protection, Hong Kong positions itself as a trusted hub for stablecoin issuance. This could give it an edge in attracting serious financial institutions over other markets.
