Hong Kong’s Stablecoin Rules Set New Guardrails for Digital Finance

Hong Kong has taken a significant step in shaping the regulatory landscape for stablecoins by enforcing its Stablecoin Ordinance as of August 1, 2025. This move establishes one of the most comprehensive frameworks for fiat-backed stablecoin issuance and operation, positioning the city as a leader in the integration of digital finance with traditional regulatory systems. The ordinance mandates that all stablecoin issuers must obtain a license from the Hong Kong Monetary Authority (HKMA), which is designated as the sole regulator for the sector. A first round of license applications is currently open, with submissions due by September 30 and initial approvals anticipated in early 2026.

To ensure robust oversight and risk management, the ordinance sets stringent financial and operational requirements for licensees. Issuers must maintain a minimum paid-up share capital of HKD25 million and demonstrate sound risk management practices and adequate capital resources. Furthermore, stablecoins must be fully backed by a reserve asset pool of high-quality, highly liquid assets, which must be held in custody by an authorized institution within Hong Kong. These requirements aim to safeguard the stability and reliability of the stablecoin system, aligning it with traditional financial standards.

The regulatory framework also includes a robust anti-money laundering and combating the financing of terrorism (AML/CFT) regime, drawing from established banking standards. All stablecoin issuers are required to implement customer due diligence measures and prohibit transactions involving anonymous users. User identification and transaction records must be retained for a minimum of five years, reinforcing accountability and transparency in the system. However, this emphasis on compliance and oversight has drawn criticism from industry voices who argue that it could impede innovation, particularly in the decentralized finance (DeFi) space.

Indeed, the ordinance prohibits stablecoins from integrating with DeFi protocols or interacting with anonymous wallets, effectively isolating them from the broader Web3 ecosystem. This approach, while intended to mitigate risks associated with illicit finance and speculative behavior, has been viewed by some as a barrier to the scalability and openness that characterize stablecoins in decentralized environments. HKMA Deputy Executive Director Chan King-hung acknowledged the higher compliance standards, noting that the framework may evolve over time as technological advancements emerge.

The ordinance also reflects Hong Kong’s broader strategy of controlled development in the digital finance sector. While the mainland Chinese regulatory environment remains largely restrictive, Hong Kong’s approach under the “one country, two systems” framework allows for a more open, albeit cautious, engagement with crypto assets. The city’s stablecoin regime may serve as a regulatory testbed, offering valuable insights for mainland policymakers and potentially supporting the outbound strategies of mainland enterprises seeking to access global capital markets. In this way, Hong Kong’s regulatory innovations may contribute to the gradual development of a crypto governance model that aligns with the financial structure and risk tolerance of the mainland.