Hong Kong to Implement Stablecoin Ordinance August 1 2025

Hong Kong is set to implement the Stablecoin Ordinance on August 1, 2025, marking a significant regulatory milestone for the region's digital asset ecosystem. This ordinance, overseen by the Hong Kong Monetary Authority (HKMA), introduces a licensing system specifically for fiat-referenced stablecoin issuers. The new regulations aim to ensure compliance and stability within the stablecoin sector, particularly for coins pegged to fiat currencies like the Hong Kong dollar (HKD) and the U.S. dollar (USD).

Under the new framework, stablecoin issuers must be pre-approved by the HKMA before they can apply for a license. This process involves advance communication with the HKMA to confirm eligibility, followed by the issuance of application forms to those who meet the basic qualifications. The ordinance does not affect native cryptocurrencies unless they are wrapped in fiat-referenced products. Retail availability of stablecoins will be restricted to licensed issuers, while non-licensed offerings will be limited to professional investors.

The Stablecoin Ordinance establishes clear legal obligations for issuers, distributors, and custodians of fiat-referenced stablecoins (FRS). These obligations include mandatory licensing, reserve asset management, redemption mechanisms, anti-money laundering and counter-terrorist financing (AML/CFT) compliance, and investor disclosure standards. The ordinance also implements strict advertising controls to limit the marketing of unlicensed stablecoin offerings, particularly to retail investors, during a six-month transitional grace period.

The new regulatory regime reflects a multi-tiered supervisory model, empowering the HKMA to grant and revoke licenses, impose civil penalties, appoint statutory managers, and oversee ongoing compliance. This forward-looking legislation addresses concerns about the systemic risks posed by unregulated stablecoin markets and aligns with international momentum toward digital asset regulation. It sends a strong signal that Hong Kong is committed to offering legal certainty to both institutional actors and innovative technology providers.

The ordinance establishes a legal foundation for the cross-border use of stablecoins tied to the Hong Kong dollar and potentially the Chinese yuan. Mainland companies have shown interest in launching offshore yuan-denominated stablecoins through Hong Kong, which could support the internationalization of the renminbi and reduce reliance on U.S. dollar-dominated stablecoins in Asia. By supporting such initiatives within a tightly regulated framework, Hong Kong positions itself as a digital asset jurisdiction and a laboratory for regional monetary innovation.

Under the new legal regime, any individual or entity involved in the issuance, distribution, redemption, or public marketing of fiat-referenced stablecoins in Hong Kong must obtain a license from the HKMA. The regime also applies extraterritorially to any stablecoin that purports to maintain a stable value with reference to the HKD, regardless of where the issuer is located. This means that even non-Hong Kong-based issuers targeting users in the city or referencing the HKD in their token design fall within the scope of the law.

A particularly notable element of the Ordinance is the restriction on advertising. Only licensed stablecoin issuers are permitted to market their products to the public, and this prohibition applies even during the initial six-month transitional period in which unlicensed entities are given time to come into compliance. These advertising rules are designed to prevent consumer confusion and protect retail investors from unregulated products, which have historically posed high risks, especially during periods of market volatility.

The breadth of the coverage affirms Hong Kong’s intention to implement a pre-emptive and comprehensive regulatory structure that addresses not only domestic issuers but also international actors whose products impact Hong Kong’s monetary system. This effectively elevates HKD-linked stablecoins to a matter of monetary sovereignty and positions Hong Kong as one of the few jurisdictions with an extraterritorial licensing rule based on currency reference rather than geographic presence alone.

Entities seeking authorization under the Stablecoins Ordinance must meet a range of rigorous prudential and operational requirements. To begin with, applicants must be either incorporated in Hong Kong or be authorized financial institutions with a physical and legal presence in the jurisdiction. A minimum paid-up capital of HKD 25 million is required unless the entity already holds a banking license or is deemed an authorized institution under existing financial law.

The regime imposes strict rules on reserve asset management. All outstanding stablecoins must be backed 1:1 by high-quality, liquid assets held in segregated accounts. These reserves must be held under trust or custodial arrangements with reputable financial institutions and subject to ongoing reconciliation, regular third-party audits, and public disclosures. This is designed to reduce credit and liquidity risk, particularly under redemption stress scenarios, and to prevent a repeat of historical events where overleveraged or illiquid stablecoins triggered investor panic.

Crucially, holders of licensed stablecoins are entitled to redeem them at par value under fair, reasonable, and timely conditions. The Ordinance mandates that redemptions be processed within one business day, further enhancing user trust in these instruments as functional payment tools rather than speculative assets.

Applicants are also required to implement comprehensive governance and compliance frameworks. These include board-level oversight, independent audit functions, fit-and-proper criteria for directors and senior management, and internal controls that cover a full suite of financial and non-financial risks—ranging from cyber risk to operational resilience. Enhanced anti-money laundering and counter-terrorist financing (AML/CFT) standards apply, especially in relation to customer due diligence, unhosted wallets, and cross-border transactions.

Taken together, these standards underscore Hong Kong’s ambition to impose bank-like prudential safeguards on stablecoin issuers while maintaining flexibility for technological and commercial innovation. The HKMA has been vested with extensive supervisory and enforcement powers under the new law. These include the authority to grant, modify, suspend, or revoke stablecoin licenses; conduct on-site inspections; investigate breaches; and compel the production of documents and data from licensees and related parties. Where necessary, the HKMA may appoint a statutory manager to oversee the affairs of a non-compliant or distressed licensee, especially where investor funds or systemic risk are at stake.

Financial penalties for non-compliance are severe. The Ordinance permits fines of up to HKD 10 million or, alternatively, a sum equal to three times the profit gained or loss avoided through the infraction—whichever is greater. This underscores the regime’s deterrent function and its focus on aligning regulatory enforcement with proportional economic consequences.

To ensure procedural fairness, a Stablecoin Review Tribunal has been established. This independent body will hear appeals on licensing decisions and sanctions issued by the HKMA. This mechanism enhances legal certainty for applicants and safeguards administrative transparency in the regulatory process.

To facilitate market adaptation, the Ordinance provides a six-month transitional period from its commencement date. During this time, existing stablecoin operators can continue to function provided they submit a license application within three months of commencement and take reasonable steps toward full compliance. The HKMA has already issued two detailed consultation papers—on AML/CFT obligations and supervisory expectations—with the consultation period closing on 30 June. Final guidelines are expected to be released before the framework officially comes into effect in August.

The industry’s response to the Ordinance has been swift and largely supportive. Major players have publicly announced their intention to apply for stablecoin licenses once the application window opens. Both companies are also lobbying for approval to issue offshore yuan-denominated stablecoins via Hong Kong, a move that would bolster the renminbi’s international role and diversify global stablecoin reserves away from U.S. dollar dominance.

Although the HKMA has signaled that it will initially approve only a small number of license holders—likely in the single digits—the quality of applicants is expected to be high. This conservative approach allows regulators to build supervisory capacity while maintaining reputational credibility. It also mirrors Hong Kong’s previous experience with virtual asset trading platforms, where the licensing process has prioritized soundness over speed.

HKMA Chief Executive has characterized the new regime as “risk-based, pragmatic, and flexible,” designed to balance innovation and investor protection. He has also stated that the framework aims to support the “healthy, responsible, and sustainable development” of the stablecoin sector, while reinforcing Hong Kong’s credentials as a trusted gateway for regulated digital finance.

More broadly, the Ordinance is part of a layered regulatory roadmap that includes upcoming regimes for virtual asset custodians and over-the-counter (OTC) service providers. These steps are expected to culminate in the Government’s second policy statement on virtual assets, anticipated later this year, which will further define Hong Kong’s strategic vision in the Web3 era.

Hong Kong’s Stablecoins Ordinance stands as a landmark achievement in digital asset regulation. By introducing a legally enforceable licensing regime, embedding strong investor protection mechanisms, and clarifying the legal status of fiat-referenced stablecoins, the city is asserting its role as a regional leader in responsible financial innovation. The integration of reserve management, redemption rights, board governance, and AML/CFT standards sets a new benchmark not only for Asia but for the global regulatory community. As the ordinance comes into effect on 1 August 2025, market participants—including technology firms, financial institutions, and international issuers—will need to move quickly to align their operations with the new framework. In doing so, they will not only gain legal certainty and reputational credibility but also contribute to the growth of a more stable, transparent, and trusted digital financial ecosystem anchored in Hong Kong.