Hong Kong Enacts Stablecoin Ordinance to Prevent Market Overheating

Hong Kong has enacted the Stablecoin Ordinance, establishing a stringent licensing regime that treats stablecoins as payment tools. This move is designed to prevent market overheating and bolster the region’s position as a global fintech hub. The ordinance draws inspiration from the EU’s MiCA framework, emphasizing the need for robust reserve asset management, price stabilization mechanisms, redemption policies, and anti-money laundering controls.

The Hong Kong Monetary Authority (HKMA) has positioned stablecoins primarily as payment instruments rather than investment assets. This distinction is crucial for managing market expectations and risks. The ordinance enforces high licensing thresholds, focusing on “practical application scenarios” and “business sustainability” to ensure that only compliant and capable issuers enter the market. The HKMA launched a Stablecoin Issuer Sandbox last year to engage with potential issuers early and clarify regulatory expectations. However, participation in the sandbox does not guarantee licensing.

Despite legislative progress, challenges remain. Integrating stablecoins with traditional financial systems is still in an adaptation phase. Convenience, operability, and financial risk prevention breakthroughs are necessary to enhance stablecoins’ practical use and market acceptance. The lawmaker suggested Hong Kong could benefit from adopting the European Union’s Markets in Crypto-Assets (MiCA) framework for effective cross-border coordination and dynamic regulatory adjustments.

The licensing regime requires issuers to demonstrate robust reserve asset management, price stabilization mechanisms, redemption policies, and anti-money laundering controls. Applications must also show feasible business plans with sufficient financial and technical resources to operate sustainably through market fluctuations. The HKMA expects that only a limited number of licenses will be granted initially to ensure market stability and protect users. With the ordinance coming into effect on August 1, 2025, and license applications opening shortly after, Hong Kong is laying the foundation for the responsible growth of stablecoins.

Hong Kong’s regulatory framework is closely aligned with international standards, including the 2023 Global Regulatory Framework for Crypto-Asset Activities issued by the Financial Stability Board (FSB). The ordinance reflects the city’s proactive stance amid developments overseas, such as the EU’s MiCA implementation in 2024 and ongoing stablecoin legislation in the United States. This move positions Hong Kong as a leader in the regulation of stablecoins, setting a precedent for other regions to follow. The ordinance is expected to attract more stablecoin issuers to the region, given its stringent regulatory framework and commitment to consumer protection.