On May 21, 2024, the Legislative Council of Hong Kong formally passed the Stablecoin Issuer Ordinance Bill on its third reading. This bill provides the first comprehensive regulatory framework for stablecoins. After the implementation of the regulation, three types of activities related to stablecoins will require a license: first, the issuance of fiat-backed stablecoins in Hong Kong; second, the issuance of Hong Kong dollar stablecoins in or outside of Hong Kong; and third, the active promotion of the issuance of fiat-backed stablecoins to the public in Hong Kong. The regulation is expected to come into effect within this year.
In terms of license application, the regulation stipulates that any individual or entity wishing to issue or operate a "designated stablecoin" in Hong Kong must submit a formal application to the Hong Kong Monetary Authority (hereinafter referred to as the "HKMA"). The HKMA will review and determine the eligibility of the applicant based on whether they meet the minimum standards listed in Schedule 2 (such as capital strength, risk management, corporate governance structure, internal control systems, etc.). For example, in terms of qualification review, it is required that the licensee must have sufficient financial resources and liquid assets, with a minimum paid-up share capital of HKD 25 million.
The license does not have a fixed term of validity. Unless revoked, or the licensee is liquidated or deregistered from the Companies Registry in Hong Kong, the license remains valid. However, if the licensee fails to meet the minimum standards or encounters significant issues, such as the inability to fulfill redemption obligations, improper governance, or serious illegal activities, the HKMA may revoke or suspend the license. If necessary, the HKMA may appoint a statutory manager to take over the business to safeguard the public interest. The HKMA will also establish a "Register of Licensees," which the public can access to check which entities have been authorized and are qualified to operate.
According to Caixin, citing the remarks of Hong Kong's Financial Secretary and Secretary for Financial Services and the Treasury, K.C. Hui, in the Legislative Council, the Bill stipulates that only designated licensed institutions are allowed to sell fiat-backed stablecoins in Hong Kong, and only fiat-backed stablecoins issued by licensed issuers can be sold to retail investors. The designated licensed institutions that are permitted to sell stablecoins in Hong Kong include: stablecoin issuers licensed by the Monetary Authority, banks, institutions licensed by the Securities and Futures Commission of Hong Kong with Type 1 license (securities trading), and licensed virtual asset trading platforms in Hong Kong.
In addition, the bill stipulates that engaging in regulated stablecoin activities without a license or selling designated stablecoins without authorization is a criminal offense, punishable by a maximum fine of HKD 5 million and imprisonment for up to 7 years. If convicted under a summary procedure, the penalty is a fine of HKD 500,000 and imprisonment for 2 years, with an additional daily fine of up to HKD 100,000 for ongoing offenses.
Other Key Points Include:
100% Reserve and Segregated Custody: Licensed issuers must maintain a robust stablecoin mechanism, ensuring that the reserve assets consist of high-quality, highly liquid assets and are always equal in value to the circulating fiat-backed stablecoins. These reserve assets must be properly segregated and safeguarded from the issuer's own assets to ensure fund security.
Unconditional Redemption Mechanism: Holders of stablecoins have the right to redeem the stablecoins from the issuer at face value. Redemption requests must be free of any fees and must be processed within a reasonable time frame.
Stringent Compliance Framework: Licensed issuers are required to comply with a series of stringent regulatory requirements, including anti-money laundering (AML), risk management, adequate information disclosure, and the selection of qualified auditors, to ensure transparency and soundness of operations.
Related Developments
In addition to legislating the stablecoin licensing system, the Hong Kong Monetary Authority (HKMA) launched a stablecoin issuer sandbox in 2024. In February of this year, Ho Wai Lok, the head of the HKMA's Digital Finance Division, revealed that the authority had received over 40 sandbox applications and accepted three groups of participants into the sandbox. The three groups of sandbox participants are: first, a consortium comprising Standard Chartered Bank (Hong Kong), Animoca Brands, and Hong Kong Telecom; second, JD Coinchain Technology (Hong Kong); and third, Circle Coin Innovation Technology. Circle Coin Technology pointed out that the Bill lists four important requirements for issuers: First, in terms of reserves, licensees must maintain a robust stablecoin mechanism, ensuring that the reserve assets of the stablecoin consist of high-quality and highly liquid assets, are always equal in value to the circulating fiat-backed stablecoins, and are properly segregated and safeguarded. Second, stablecoin holders have the right to redeem the stablecoins from the issuer at face value, with redemption requests being free of any fees and processed within a reasonable time frame. Third, compliance with a series of requirements related to anti-money laundering, risk management, disclosure, and the selection of appropriate auditors. Fourth, trading must be conducted on licensed virtual asset trading platforms.
On April 21, Shen Jiangang, Vice President of JD.com, stated that JD's stablecoin has entered the "sandbox" testing phase in Hong Kong and is expected to be rolled out globally in the future. He noted that the development of stablecoin business is rapid, and JD's issuance of stablecoins aims to enhance global supply chain and cross-border payment capabilities. Shen emphasized that the issuance of stablecoins in any country or region must ensure compliance and follow the regulatory principles of different countries or regions.
Hong Kong Legislative Council member Wu Jiezheng tweeted that it is expected that by the end of this year, institutions will be able to apply to the Hong Kong Monetary Authority to become compliant stablecoin issuers, with stablecoins backed by fiat currencies as underlying assets. Wu Jiezheng pointed out that the passage of this law is the starting point for building Web3 infrastructure. Subsequently, there should be further efforts to promote the application of stablecoins in areas such as physical retail and cross-border trade. He suggested considering the release of stablecoin interest to enhance market attractiveness. Legislator Wu also proposed that assets such as offshore renminbi could be considered as underlying assets, and interest earned through investment could potentially be directly distributed to stablecoin holders in the future.
After the Legislative Council of Hong Kong passed the Stablecoin Ordinance Bill on its third reading, HashKey Chain announced that it would provide full-stack support for Hong Kong stablecoins and real-world asset (RWA) projects that can serve as reserve assets for stablecoins, accelerating the construction of on-chain infrastructure for stablecoin issuance, circulation, and management. HashKey Chain will also launch a non-erosive, 1:1 on-chain stablecoin swap tool to facilitate the widespread application of stablecoins in real financial scenarios.
OSL Group, a licensed virtual asset trading platform in Hong Kong, expressed high attention and strong support for this matter. It believes that at this critical moment when the global traditional financial system is being reshaped, this will have a profound impact on the development of the digital asset market and provide strong impetus for growth. Gary Tiu, Executive Director and Head of Regulatory Affairs of OSL Group, stated, "OSL Group actively participated in the discussions on Hong Kong's stablecoin policy, witnessing and contributing to the formation of the stablecoin framework. The regulation sets unified standards for industry development, which helps enhance transparency and long-term stability."
