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As global digital finance continues to evolve, stablecoins have emerged as a crucial bridge between decentralised blockchain networks and the traditional financial system. How to implement the legal characterisation and compliance requirements of stablecoins has become a central focus of regulators across jurisdictions.

On 1 August 2025, the Hong Kong Stablecoin Ordinance came into force, marking Hong Kong as one of the first jurisdictions to launch a licensing regime for stablecoin issuers.

What are stablecoins?

A stablecoin refers to a crypto-asset that purports to maintain a stable value with reference to a single asset or a pool or basket of assets. Unlike other initial coin offering tokens or platform-native tokens, with value that is largely influenced by market sentiment, stablecoins typically peg their value to fiat currencies issued by the government authority of a country, maintaining a relatively stable nominal value.

From the perspective of ensuring stability, stablecoins are generally categorised into algorithmic-backed stablecoins and reserve-backed stablecoins. The latter are backed by real-world assets denominated in fiat currencies and represent the predominant issuance model generally recognised under the regulatory frameworks of many jurisdictions.

At present, the vision of re-engineering the monetary issuance system on blockchain technology has crystallised into two distinct paths: central bank digital currencies (CBDCs) and stablecoins. While central banks are actively developing CBDCs, stablecoins have emerged as a parallel value transfer mechanism.

Distinguished by their decentralised architecture, flexible issuance models and rapid market adaptability, stablecoins have operated outside the infrastructure of traditional financial intermediaries and are increasingly used in applications such as cross-border settlements and on-chain payments.

HK stablecoins ordinance

The ordinance designates the Hong Kong Monetary Authority (HKMA) as the sole licensing and supervisory authority for stablecoin issuers, and establishes a comprehensive regulatory framework governing the issuance, redemption and distribution of stablecoins.

The HKMA has further issued a suite of supplementary regulatory requirements in detail across several core areas including eligibility criteria for licensing, systems of control, the anti-money laundering and combating the financing of terrorism (AML/CFT) obligations, and management of reserve assets, among others.

Notable components of the regulatory regime introduced by the ordinance and its associated guidance material are summarised below:

Stringent licensing requirements for licensees. Under the ordinance, the applicant must be either a company incorporated in Hong Kong or an authorised institution incorporated outside Hong Kong. The authorised institution under the Banking Ordinance includes a bank, a restricted licence bank or a deposit-taking company.

The applicant must maintain a minimum paid-up share capital of HKD25 million (USD3.1 million) or an equivalent amount in another currency. It must also satisfy the HKMA that it possesses adequate financial resources, sound risk management policies, and fit and proper personnel so as to ensure that the issuance of specified stablecoins is underpinned by the applicant’s strong creditworthiness.

Local reserves and timely redemption. The ordinance and its associated guidance jointly require that any stablecoin to be issued must be fully backed by a specified reserve assets pool, consisting of high-quality and highly liquid assets denominated in the same currency as the one to which the stablecoin is pegged.

These assets must be held by an authorised institution in Hong Kong, embedding the issuance structure within the existing financial system and ensuring prompt and secure redemption on demand.

AML/CFT regime referencing banking standards. In contrast to the more liberal, decentralised approaches adopted in certain overseas jurisdictions, Hong Kong has embraced a cautious, regulation-first framework, positioning the specified stablecoins primarily as settlement instruments rather than speculative assets.

Pursuant to the ordinance and its supplementary AML/CFT consultation conclusions, the licensed stablecoin issuers are required to implement comprehensive customer due diligence measures. They are expressly prohibited from dealing with anonymous users and must retain user identification and transaction records for a minimum of five years.

Supervision across the stablecoin life cycle. The ordinance and the consultation conclusions for licensed stablecoin issuers provide that stablecoins may only be issued to an issuer’s own customers, and redemption requests must be processed within one business day on request and without unreasonable costs. Distribution activities must comply with the applicable laws and regulations of relevant jurisdictions, prohibiting distribution in any jurisdiction where the offering or trading of stablecoins is not permitted.

The licensed stablecoin issuers are expected to align local legal obligations with global compliance standards by developing cross-border governance and operational mechanisms. These mechanisms ensure comprehensive oversight and effective control across all phases of the stablecoin life cycle, from issuance to redemption and distribution.

Implications for mainland China

The commencement of the ordinance has garnered considerable attention within mainland China. Nevertheless, it is important to emphasise that this regulatory development represents a local legislative initiative undertaken by the Hong Kong government under the “one country, two systems” framework. It does not necessarily indicate any imminent shift in the mainland’s latest regulatory posture towards crypto-assets.

The establishment of Hong Kong’s stablecoin regulatory regime may exert influence on, or offer insights for, the mainland in several key respects.

Divergent regulatory approaches under “one country, two systems”. The commencement of the ordinance should not be taken as a signal that the mainland is preparing to relax its regulatory restrictions on crypto-assets. The divergence in regulatory posture stems from the “one country, two systems” framework.

While Hong Kong, leveraging its status as an international financial centre, has adopted a strategy of conditional openness and controlled development in the realm of crypto-assets, the mainland maintains a more cautious, conservative and restrictive regulatory posture, prioritising the stability of the financial system as well as the preservation of social and monetary order.

Activities such as the trading, investment and utilisation of crypto-assets continue to be characterised as illegal financial activities under mainland regulatory frameworks.

As a gateway for outbound business. The ordinance may represent a meaningful step towards building financial infrastructure that can support the outbound strategies of mainland enterprises. Historically, many such enterprises have accessed international capital markets primarily through Hong Kong via the setting up of offshore corporate structures for red-chip listings.

Stablecoins may serve as a low-risk gateway for mainland enterprises to integrate with the global financial system, bridging mainland domestic operations with overseas capital markets.

By leveraging the stablecoin regulatory framework, Hong Kong-based affiliates of mainland enterprises may explore new modalities of digital asset deployment, enabling efficient linkage between mainland business operations and overseas capital markets. In this way, the Hong Kong stablecoin regime may help enhance financial connectivity between the mainland and the global economy.

A regulatory testbed for mainland policymakers. Hong Kong’s early-stage stablecoin regime may be regarded as a de facto regulatory sandbox for compliance with crypto-asset governance requirements. Its institutional experimentation – ranging from regulatory resource allocation, the design of specified reserve asset structures, and the development of AML/CFT frameworks – offers valuable practical insights for the mainland’s future policy formulation and implementation.

Over time, mainland financial regulators may draw on Hong Kong’s experience to gradually develop a crypto-asset governance model tailored to the mainland’s financial structure and investors’ risk appetite.

The ordinance marks a significant step forward in the global institutionalisation of stablecoin regulation. The initiative not only responds to growing public expectations regarding the safety and reliability of crypto-assets, but also seeks to strike a balance between financial innovation and risk management.

In this context, it serves as a valuable reference point for the development of international regulatory frameworks for stablecoins by government authorities around the world.

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