Hong Kong Approves Stablecoins Bill, Sets 100% Reserve Requirement

The Hong Kong Legislative Council has approved the Stablecoins Bill, marking a pivotal moment in the region's regulatory framework for virtual assets. This new licensing regime, spearheaded by the Hong Kong Monetary Authority (HKMA), aims to regulate fiat-referenced stablecoin issuers effectively, fostering financial stability while encouraging innovation in the virtual assets sector.

The passage of the Stablecoins Bill on 21 May 2025 by the Legislative Council is a significant development. The bill establishes a licensing regime for fiat-referenced stablecoin (FRS) issuers, with over 40 firms expressing interest in obtaining these licenses. The new regulations will directly impact stablecoins pegged to currencies like the Hong Kong dollar, requiring issuers to maintain fully-backed reserve assets and conduct compliance checks.

The Stablecoins Ordinance (Cap. 656) will come into operation on 1 August 2025. It sets out stringent requirements for licensees, including licensing, incorporation and capital, reserve assets management, redemption rights, risk management, and disclosure and governance. Any person or entity issuing an FRS in Hong Kong or issuing an FRS that purports to maintain a stable value with reference to Hong Kong dollars, whether in or outside Hong Kong, will need to obtain a license from the HKMA. Licensees must be companies or authorized institutions incorporated outside Hong Kong with a minimum of HKD 25 million (or its equivalent in another currency) in paid-up share capital or other financial resources as approved by the HKMA. Each type of stablecoin issued must be backed by high-quality and highly liquid reserve assets, segregated from any other pool of reserve assets maintained by the licensee. The market value of the specified reserve asset must at all times be at least equal to the par value of the outstanding stablecoins of the type in circulation.

Licensees must provide each stablecoin holder with the right to redeem and must not impose any conditions that are unduly burdensome or unreasonable fees. Adequate frameworks and internal controls must be in place to address operational, financial, technological, and compliance risks. Issuers must provide transparent information on each stablecoin issued, including a white paper, and obtain HKMA’s prior consent for key personnel appointments.

The implications for businesses are significant. Licensed issuers can offer stablecoins to retail investors, encouraging broader participation. Mainland institutions are expected to roll out tokenized real-world assets (RWA) in the city. However, companies should anticipate higher compliance costs, particularly for anti-money laundering, cybersecurity, and governance.

The new regulations are expected to attract a range of companies seeking to expand their stablecoin operations. For instance, Ant International announced plans to expand its stablecoin operations in Hong Kong, Singapore, and Luxembourg. The conservative model adopted by Hong Kong requires 100% high-quality reserves with zero active management, which is expected to provide a stable and secure environment for stablecoin issuers.

The introduction of the Stablecoins Ordinance is a significant step forward in the regulation of virtual assets in Hong Kong. It provides a clear framework for stablecoin issuers, ensuring that they operate within a regulated environment. This move is likely to enhance investor confidence and encourage broader participation in the virtual asset market. The ordinance also sets a precedent for other regions looking to regulate stablecoins, highlighting the importance of transparency, risk management, and compliance in the virtual asset industry.