Hong Kong Enacts Stablecoin Law Requiring Licenses for Issuers

Hong Kong has enacted legislation to regulate fiat-referenced stablecoins (FRS), marking a significant step in its efforts to establish itself as a digital asset hub while addressing concerns about investor protection and financial stability. The new law, approved by the city’s Legislative Council, mandates that FRS issuers obtain a license from the Hong Kong Monetary Authority (HKMA). This regulatory framework requires licensees to adhere to stringent standards, including reserve asset management, redemption at par value, segregation of client funds, anti-money laundering controls, disclosure, and fitness and propriety standards.

Christopher Hui, Secretary for Financial Services and the Treasury, emphasized that the ordinance aligns with international regulatory requirements and provides a solid foundation for Hong Kong’s virtual asset market. The law is part of a broader effort to rehabilitate the region’s crypto reputation following the collapse of fraudulent exchange JPEX in 2023. Authorities are now focused on balancing innovation in digital assets with the protection of retail investors from potential abuses.

Under the new regime, only licensed institutions can issue an FRS in Hong Kong, and only licensed offerings may be marketed to retail investors. Unauthorized advertisements will be prohibited, even during the six-month grace period before enforcement begins. The HKMA will further consult on detailed requirements to ensure compliance and clarity for issuers.

The market for stablecoins in Hong Kong remains modest compared to global volumes. However, the new bill provides issuers with clear guidelines on licensing, redemption obligations, reserve requirements, and a framework that is friendly to traditional finance. Despite this, Hong Kong remains a smaller player in global stablecoin activity, with Tether being the preferred cryptocurrency in numerous OTC trading shops in the region. U.S. dollar-backed assets in American markets continue to dominate the stablecoin sector worldwide.

Hong Kong’s legislation comes at a time when the U.S. Senate is advancing its own stablecoin bill, known as the GENIUS Act. This act, which recently cleared a key procedural vote, aims to create a nationwide legal framework for issuing stablecoins in the U.S. The act must still pass the House before reaching the President, who is expected to sign it into law. This development highlights a shift in regulatory momentum, with the U.S. emerging as a pro-crypto regulatory leader, surpassing regions like Hong Kong, Singapore, and Dubai.

Hong Kong’s stablecoin ordinance is expected to come into effect later this year, with transitional provisions to help issuers adjust to the new regulatory environment. This move underscores the region’s commitment to fostering a robust and secure digital asset market, while also ensuring that it remains competitive on the global stage.