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As stablecoins reshape global finance, regulators are developing different legal approaches

Impact of HK stablecoin rules on mainland China

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.

Han Kun Law Offices
33/F, HKRI Centre Two, HKRI Taikoo Hui,
288 Shimen Road (No. 1), Jing’an District
Shanghai 200041, PRC
T: +86 21 6080 0909
E: shanghai@hankunlaw.com

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Korea’s emerging stablecoin framework

South Korea does not yet have a regulatory framework dedicated to stablecoins. Instead, they fall under the general definition of “virtual assets” under the Virtual Asset User Protection Act as being “electronic certificates (including all associated rights) that have economic value and that can be traded or transferred electronically”.

Regulatory initiatives and policy debates, however, are already progressing. On 15 January 2025, the Virtual Asset Committee of the Financial Services Commission (FSC), the primary financial regulatory authority in South Korea, announced the second phase of its legislative agenda for virtual assets, with a primary focus on establishing a dedicated regime for stablecoins.

Stablecoins subsequently became a prominent policy issue, particularly during the June 2025 presidential election, when institutionalising a Korean won-denominated (KRW) stablecoin was a key campaign pledge of President Lee Jae-myung. Following his election, the legislative momentum has accelerated.

The initial policy debate centred on the systemic risks, including threats to monetary sovereignty, capital flight and trade settlements in foreign-denominated stablecoins – all of which led to concerns over regulatory arbitrage. More recently, however, the discussion has shifted towards recognising the benefits of a domestically regulated KRW stablecoin, such as their potential to enhance the global competitiveness of KRW and foster innovation in domestic payment systems.

This article provides an overview of the proposed legislation on stablecoins in South Korea, focusing on the key issues of issuer eligibility and the regulatory treatment of foreign-issued stablecoins.

Current regulatory treatment

Because stablecoins are currently treated the same as any other virtual asset, the existing framework under the Protection Act, the Act on Reporting and Using Specified Financial Transaction Information, and numerous de facto informal supervisory practices – often referred to as “shadow regulations” – apply.

This means that the issuance of virtual assets (including stablecoins) is prohibited. In addition, entities engaged in converting stablecoins into fiat currency for third parties are treated as virtual asset service providers (VASPs) that must be registered with the FSC. This classification creates two immediate challenges.

First, South Korean VASPs must obtain real-name bank accounts for clients, but domestic banks tend to be highly conservative in granting such accounts. Second, South Korean financial institutions are prohibited from holding virtual assets on their balance sheets. Whether this prohibition extends to stablecoins is unclear, but it could significantly constrain licensed intermediaries’ roles in stablecoin distribution.

As a result, while distributors (such as exchanges and payment service providers) are indispensable to adopting stablecoins, they face substantial compliance obligations and regulatory uncertainty. These challenges highlight why policymakers and stakeholders have increasingly called for a supervisory framework for stablecoins.

Legislative proposals under review

Three legislative proposals are under review in the National Assembly of Korea. Together, the three proposals illustrate differing philosophies on how to regulate stablecoins: comprehensive regulation; narrow but strict oversight; and innovation-focused openness.

The Digital Asset Basic Act, introduced by parliamentary representative Byung-deok Min in June 2025, creates a comprehensive legal framework for digital assets that distinguishes between “general digital assets” and “asset-linked digital assets”, the latter category covering stablecoins and requiring licensing from the FSC.

Accordingly, stablecoin issuers are required to maintain at least KRW500 million (USD360,000) in capital, establish adequate refund reserves, submit a credible business and repayment plan, and file a registration statement detailing technical infrastructure, issuance limits and redemption mechanisms. This bill resembles the EU’s Markets in Crypto-Assets Regulation for encompassing both stablecoins and other digital assets under a unified regime.

Fellow representative Do-geol Ahn sponsored the Issuance and Distribution of Value-Stabilised Digital Assets (the Value-Stabilised Assets Act) in July 2025. Unlike the broader Digital Asset Basic Act, the Value-Stabilised Assets Act focuses exclusively on stablecoins. The bill defines stablecoins as digital assets linked to legal tender designed to preserve stable value, and imposes a higher capital requirement of KRW5 billion.

It also sets conditions for financial integrity, social credibility, internal controls, qualified personnel and cybersecurity safeguards. The proposal prohibits paying interest, discounts or other remuneration to stablecoin holders while requiring issuers to prepare and publish prospectuses and disclose reserve balances monthly.

Finally, the Act on Payment Innovation through Stable Digital Assets (the Payment Innovation Act) was introduced by parliamentary representative Eun-hye Kim in July 2025. This bill defines stablecoins as assets pegged to legal tender or other stable-value assets, issued on distributed ledgers, and redeemable on demand. It requires issuers to maintain KRW5 billion in capital, while holders are granted redemption rights enforceable within 10 days.

Foreign-issued stablecoins

A key distinction among the three bills lies in their approach to foreign-issued stablecoins. The Digital Asset Basic Act adopts the most restrictive approach by requiring foreign issuers to establish a local branch or subsidiary in South Korea and obtain a licence from the FSC, thereby subjecting them to the same standards as domestic issuers.

The Value-Stabilised Assets Act takes a more moderate stance by requiring foreign stablecoins to undergo a rigorous eligibility assessment before they can be listed on South Korean exchanges.

This assessment would evaluate the licensing status of the foreign issuer in its home jurisdiction, the adequacy and composition of reserve assets, the existence of comparable anti-money laundering and combating the financing of terrorism safeguards, and the availability of dispute resolution mechanisms.

The Payment Innovation Act is the most permissive, allowing foreign stablecoins to be distributed in South Korea on a simple registration with the FSC, provided that basic prudential and operational requirements are satisfied.These approaches can be summarised below:

In short, regardless of the model ultimately adopted, the current unrestricted circulation of foreign stablecoins, such as USDT and USDC, in South Korea will end.

Issuer eligibility

Another core issue is the eligibility of issuers. While the Payment Innovation Act expressly permits both financial institutions and non-financial institutions to issue stablecoins, the other two bills also do not restrict issuance to financial institutions. Based on the current drafts of the three bills, any stock corporation meeting capital and governance requirements could obtain a licence.

However, South Korea has a history of taking a more cautious approach when opening the door for new financial innovations. For example, the government has required a minimum equity stake from financial institutions in internet-only banks to ensure prudential oversight and reduce risks associated with industrial capital.

In fact, the Bank of Korea has repeatedly cited concerns about monetary policy disruption, inflationary risks and seigniorage. Allowing large non-financial conglomerates or technology companies to issue stablecoins, in the Bank of Korea’s view, would effectively authorise a form of “narrow banking”, undermining South Korea’s longstanding principle of separation between commerce and finance.

Given this context, any final legislation is likely to limit issuance to banks and regulated financial institutions or, alternatively, allow non-financial issuers to participate only within consortia where financial institutions hold controlling stakes. Reports suggest that major South Korean technology companies and domestic virtual asset exchanges are in negotiations with banks to form such consortia in anticipation of the forthcoming framework.

Outlook

The debate over stablecoin regulation reflects the broader policy tension between safeguarding monetary sovereignty and financial stability, and fostering technological innovation and market competitiveness. The three legislative proposals present contrasting philosophies: prudential restriction in the Digital Asset Basic Act; balanced openness in the Value-Stabilised Assets Act; and innovation-driven permissiveness in the Payment Innovation Act.

All three bills are still at an early legislative stage, and their passage timeline is uncertain. Even so, given the political drive and sustained debate, market participants – whether issuers, distributors or financial institutions – should begin preparing in advance for a regime that will fundamentally reshape the treatment of stablecoins.

South Korea is emerging as a pivotal jurisdiction in the global debate on stablecoin regulation. With one of the world’s most dynamic financial markets and an active retail investor base, especially among younger generations, adoption is likely to be both swift and far-reaching. Once enacted, the stablecoin regime will not only influence domestic payment and settlement systems, but also shape the country’s role as a regional leader in digital finance.

Shin & Kim
23F, D-Tower (D2), 17 Jongno 3-gil,
Jongno-gu, Seoul 03155, Korea
Tel: +82-2-316-4114
Email: shinkim@shinkim.com

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