On 21 May 2025, Hong Kong’s Legislative Council passed the Stablecoins Bill (Bill) to establish a new regulatory regime for activities involving fiat-referenced stablecoins, which is set to take effect by year-end.  First gazetted on 6 December 2024, the Bill has since undergone a series of technical and textual amendments, which we discuss below.  In tandem, the Hong Kong Monetary Authority’s (HKMA) has also released two key consultation documents on 26 May 2025: the Consultation Paper on the Proposed AML/CFT Requirements for Regulated Stablecoin Activities (Stablecoin AML/CFT Consultation) and the Draft Guideline on Supervision of Licensed Stablecoin Issuers (Stablecoin Licensee Guidelines Consultation).  We summarize the key proposals from both consultations below.  The compliance expectations are high, and the HKMA is inviting written feedback from market participants and other stakeholders by 30 June 2025.  

SNAPSHOT OF THE BILL

Before exploring the amendments to the Bill, here’s a snapshot of Hong Kong’s incoming regime. 

  • What stablecoins are in-scope?  In summary, “stablecoin” is defined in the Bill as a type of virtual asset[1] (VA) used (or intended to be used) as a medium of exchange, e.g. for payments for goods or services and which purport to maintain a stable value with reference to a single asset, or a pool or basket of assets.  The definition excludes certain central bank or government issued digital representations of value, for example CBDCs.  The Bill sets out a regulatory framework for certain activities relating to “specified stablecoins”, which are those pegged to one or more official currencies or a digital representation of value and gives the HKMA authority to also designate a specified stablecoin by way of gazettal.  For the purpose of this article, the term “stablecoin” means a stablecoin that is a specified stablecoin as defined in the Bill.
  • Who needs a license?  Any person who: (i) issues a stablecoin in Hong Kong in the course of business; (ii) issues a stablecoin in a place outside Hong Kong in the course of business, and the stablecoin purports to maintain a stable value with reference (whether wholly or partly) to the Hong Kong dollar; or (iii) carries on an activity otherwise designated by the HKMA (each a “regulated stablecoin activity”).   Unless exempted, it is an offence to carry out any of the aforesaid regulated stablecoin activities without a license granted by the HKMA, punishable by a fine of HK$5M and seven years imprisonment.   
  • What are the duties of licensees?  Licensees must fulfil various minimum criteria, covering reserve asset management, redemption, restrictions on business activities (e.g. lending and financial intermediation), local presence requirements, financial resources, anti-money laundering and counter-terrorist financing systems and controls, risk management, disclosure, auditing, and fitness and propriety (e.g. approval for key personnel appointments).
  • Who can offer (advertise) stablecoins?  The regulatory framework encompasses activities in relation to stablecoins in addition to issuance, including offering.  A person must not offer, or hold itself out as offering, a specified stablecoin, unless the person (if not exempted by HKMA) is a licensee or another permitted offeror, subject to fulfilling the relevant condition(s). Importantly, offering is distinct from issuance and refers to any communication to the Hong Kong public (by any means) that provides enough information about the offer and channels of a stablecoin to enable them to decide whether to acquire it. 
  • Can the HKMA designate additional stablecoin entities, issuers and activities, without the need to pass new legislation?  Yes – after consulting the Financial Secretary and taking into account factors including significance to public interest, materiality to the monetary or financial stability of Hong Kong, and the functioning of Hong Kong as an international financial centre.

Please refer to our earlier note for more information.

AMENDMENTS TO THE BILL

We set out below three notable amendments that have been made to the Bill during the legislative process

1. Noteworthy amendment 1 – no more subjective wiggle room for licensees’ in respect of reporting financial trouble  

Originally, the Bill required licensees to report to the HKMA after “it appears to a licensee that” it is likely to become unable to meet its obligations, is insolvent or is about to suspend payment – making the triggering of the duty a subjective decision.  The amended version now omits the words “it appears to a licensee that”, such that an objective test applies. 

2. Noteworthy amendment 2 – reinforcing the Stablecoin Review Tribunal’s power to stay decisions of the HKMA 

The Bill establishes an appeal mechanism in relation to decisions made by the HKMA in respect of the stablecoin regulatory regime in the form of the Stablecoin Review Tribunal.  To better reflect the policy intent, the amended version empowers the Stablecoin Review Tribunal to suspend the execution of HKMA’s decisions.  The Stablecoin Review Tribunal can grant the stay – subject to any condition as to costs, payment of money into the tribunal or otherwise that the Tribunal considers appropriate – upon application by the person aggrieved by a specified decision (e.g. a decision by the HKMA to impose a sanction).  

3. Noteworthy amendment 3 – SVF licensees added as “permitted offerors” of stablecoins

The Bill only permits certain licensed entities to offer stablecoins to the Hong Kong public (including retail investors). 

Originally, stored value facility (SVF) licensees under the Payment Systems and Stored Value Facilities Ordinance (Cap. 584) (PSSVFO) were not included in the definition of permitted offerors.  However, having considered the use cases and development trend of stablecoins, the amended version now expands the scope to five types of entities to now also includes SVF licensees:  

(a) licensees under the new regime;

(b) virtual asset trading platform operators licensed by the Securities and Futures Commission (SFC) under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615);

(c) corporations licensed by SFC for Type 1 regulated activity (dealing in securities) under the Securities and Futures Ordinance (Cap. 571);

(d) authorized institutions (AIs) under the Banking Ordinance (Cap. 155) (i.e. a bank, a restricted license bank or a deposit-taking company), and   

(e) SVF licensees under the PSSVFO.

STABLECOIN AML/CFT CONSULTATION

As mentioned, the HKMA is now consulting on AML/CFT regulatory requirements for licensed stablecoin issuers, which have been formulated to address potential stablecoin risks and current international AML/CFT standards.    The proposed AML/CFT requirements are summarised as follows:

  1. General standards: Licensees must implement appropriate and effective AML/CFT policies, procedures and controls to manage and mitigate ML/TF risks associated with its stablecoin business operations.
  2. Minimum licensing criteria: Applicants (and licensees) must meet (and maintain) minimum standards, including risk-based and institutional ML/TF risk assessments, governance; senior management oversight, internal audit and staff training, controls to combat terrorist financing, financial sanctions, suspicious transaction reporting, and record-keeping.
  3. Customer due diligence (CDD): Regardless of the minting models (pre-minted or on-demand etc.), CDD measures are mandatory, including for customers with a business relationship with the licensee and/or occasional transactions of ≥ HKD$8,000. 
  4. Issuance and redemption controls: Before transfers or redemptions, licensees must identify whether the customer wallets are custodial (e.g. financial institution or VASP) or unhosted.  Custodial providers require due diligence, and unhosted wallets require additional controls (including enhanced monitoring, transfer only to “reliable” wallets, and set transaction limits).
  5. Ongoing monitoring: Licensees must adopt adequate measures to guard against the risk of the issued stablecoins being used for illicit purposes, including adopt appropriate tech solutions to screen transactions and associated wallet addresses.
  6. Travel rule: Licensees must comply with the Travel Rule.
  7. Secondary market oversight: Licensees must adopt additional measures for ongoing monitoring of stablecoins circulated in secondary markets.

Additional AML/CFT guidelines for stablecoin activities beyond issuance and redemption (i.e. offering and custody) are also expected to be released for consultation later in 2025.

CONSULTATION PAPER ON THE PROPOSED SUPERVISION OF LICENSED STABLECOIN ISSUERS

As mentioned, the HKMA is also consulting on the minimum criteria which licensees are expected to fulfil on an ongoing basis, the proposals of which we set out below.

1. Reserve assets management proposal

  • Full backing: Stablecoins must always be fully backed by reserve assets equal to or greater than their par value, with regular reconciliation to verify full backing. Issuers must apply prudent calculation methods, maintain over-collateralisation to cover market risks, and ensure custodial arrangements do not compromise full backing (e.g. through fees).
  • Scope and composition of reserve assets: Reserve assets must be of high quality and highly liquid with minimal investment risks, and may include short-term bank deposits, qualifying marketable debt securities, cash receivables from overnight reverse repos, dedicated investment funds, or other assets approved by the HKMA.
  • Referenced currency: Unless there is a legitimate (and demonstrable) reason for having a currency mismatch, the reserve assets must be denominated in the reference currency of the issued stablecoin.  Flexibility is permitted for HKD-referenced stablecoins due to the stable exchange range with USD.
  • Segregation and safekeeping: Reserve assets must be held on trust, segregated from the licensee’s assets, and available for redemption at par.  A trust arrangement’s effectiveness must be supported by an independent legal opinion.  Any third party engaged for safekeeping of reserve assets must be qualified (i.e. licensed bank or other asset custodian acceptable to the HKMA), with the primary responsibility borne by the licensee.
  • Non-interest bearing: Licensees must not pay interest or interest-like incentives to stablecoin holders, except for non-interest-based marketing incentives.  Any income or loss arising from the management of reserve assets must be attributed to the licensees.
  • Disclosure and reporting: Licensees must publicly disclose, amongst others, reserve asset policies and valuations, prepare statements on the par value daily, submit weekly reports to the HKMA and update the website with the same, engage HKMA-approved qualified and independent auditors to perform regular attestations, and report any unresolved discrepancies etc. to the HKMA immediately.

2. Issuance, redemption and distribution proposals

  • Issuance requirements: Stablecoin issuance must be prudent and sound, supported by an effective issuance mechanism, with issuance carried out only to customers and as soon as practicable after receipt of funds and a valid issuance request.  Minting must be matched by a corresponding increase in reserve assets.
  • Redemption requirements:  Stablecoin holders must be able to redeem at par value, with rights to direct disposal and claim shortfalls even in insolvency.  Valid redemption requests must be fulfilled within one business day, without unreasonable fees or unduly burdensome conditions attached.  
  • Distribution requirements: Stablecoin distribution must be prudent and sound, even where third parties are involved (who must also be vetted appropriately).  If third parties provide liquidity on the secondary market, the goal must be to maintain relatively stable value and address any potential or actual conflicts of interests.
  • Customer on-boarding: Customer on-boarding must involve CDD, comply with the laws and regulations of foreign jurisdictions (where offering the stablecoins), and implement controls to mitigate the risk of location spoofing.
  • Disclosure and reporting: Licensees must disclose to the public certain information – including the redemption mechanism and procedures, redemption rights, timeframe, any applicable conditions and fees, and terms and conditions – via its white paper and website.  Regular audits must verify compliance with issuance, redemption, and distribution policies, with outcomes reported to the HKMA in a timely and prompt manner upon request and breach incidents reported to the HKMA immediately.

3. Business activities proposals

  • For business activities other than a licensed stablecoin activity, licensees (excluding AIs) must obtain the HKMA’s consent and establish clear governance arrangements.  Issuing more than one type of stablecoin requires prior consultation with the HKMA, along with evidence that the licensee has adequate capabilities and resources to manage them without adverse impact.

4. Financial resources proposals

  • Licensees (excluding AIs) must always maintain at least HK$25 million in paid-up capital (or equivalent in a freely convertible currency) or equivalent HKMA-approved amount.  Such financial resources must only be used for its business activities – not for dealings with related parties. 

5. Risk management proposals

  • Risk governance: Licensees must establish risk governance arrangements with well-defined responsibilities of the board, specialised committees (if any), senior management and different functions of the licensee. Licensees must implement three lines of defence, which deal with business units, independent risk management and compliance, and independent internal audit function.
  • Risk management framework and internal control system: Licensees must identify and assess its exposure to all material risks associated with its businesses, engaging the board in a timely manner.  
  • Credit, liquidity and market risk management: Licensees must manage counterparty credit risk exposures and establish an effective framework for projecting and monitoring liquidity demand under normal and stressed conditions for redemption.  Stress tests must also be conducted and submitted to the board and HKMA.
  • Technology risk management: Licensees must establish technology risk management frameworks that cover key areas, such as  token management, wallet and private key management, account management, security management, information management, IT services and operations, project and change management, network management, cybersecurity, disaster recovery, and technology service providers.
  • Operational risk management: Licensees must put in place effective policies and procedures to manage their operational risks, including those associated with third party arrangements.
  • Reputation risk management: Licensees must implement effective processes for the management of reputation risk which are appropriate for the size and complexity of its business, including implementing adequate measures for identifying and handling potential fraud.

6. Corporate governance

  • Licensees must establish a sound governance arrangement for effective decision making and the proper management of risks.  The board is ultimately responsible for the operations and soundness of the licensee, with at least one third being independent non-executive directors. Senior management must report to the board.  The compliance function must directly report to senior management, as well as report matters to the board directly.  The compliance function and internal audit functions must be independent and not substituted by one another.

7. Business practices and conduct

  • Information and accounting systems: Licensees must establish robust information and accounting systems, including adequate record keeping policies and systems taking into account relevant statutory and regulatory requirements, whether the systems are located in or outside Hong Kong.
  • Disclosure and reporting: Disclosure and reporting to the public must be accurate (to the best of the licensee’s knowledge), up-to-date, and reflect the actual operations of its business.  In particular, the white paper must include information about the licensee, stablecoin, reserve assets management arrangement, issuance, redemption, distribution, underlying technology, and associated risks.
  • Fitness and proprietary: Appointment of key personnel – such as chief executives, stablecoin manager, directors, controllers and managers – must meet certain requirements, including fitness and proprietary standards and HKMA prior approval.

WAY FORWARD

The exact commencement date of the Bill is yet to be announced, but it is expected to commence this year. A 6-month transitional arrangement will apply to eligible pre-existing stablecoin issuers, subject to the HKMA’s preliminary assessment of their likely compliance with the new regime.    

Comments on theStablecoin AML/CFT Consultation and Stablecoin Licensee Guidelines Consultation are due by 30 June 2025. 

Beyond stablecoins, Hong Kong will continue advancing other releases on its regulatory roadmap, including the VA over-the-counter and custodian service consultation.  Please refer to our earlier piece on what’s to come here.

We would be happy to help you navigate Hong Kong’s changing regulatory landscape – feel free to reach out to us anytime.  

[1] As defined in section 53ZRA of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615).