Licensing the Ledger: Hong Kong’s bold regulatory leap

After much anticipation, the Hong Kong Legislative Council finally passed the Stablecoins Ordinance (the “Ordinance”) on 21 May 2025, with the Ordinance subsequently gazetted on 30 May 2025 and takes effect on 1 August 2025. The Ordinance marks not only an end to regulatory uncertainty, but also a start to a new era of regulation of fiat-referenced stablecoins.

The key content of the Ordinance is as follows:

Issuers of specified stablecoins in Hong Kong – i.e. any person issuing a specified stablecoin in Hong Kong, or issues a specified stablecoin that purports to maintain a stable value with reference to HKD in or outside Hong Kong - are required to be licensed by the Hong Kong Monetary Authority (“HKMA”);
There will be a transitional period to facilitate licensing applications by prospective issuers;
Issuers are required to comply with certain licensing requirements – e.g. reserve backing with high-quality liquid assets and robust redemption mechanisms; proper segregation of client assets; compliance with Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) requirements; implementation of effective risk management, audit, and disclosure standards, etc.;
The offering of a specified stablecoin to retail investors is limited to licensed issuers only; and
Only advertisements of licensed specified stablecoins issuers are allowed.

You may also refer to our prior insights (English version only) for its development history.

Hot on the heels of the passing of the Ordinance, the HKMA has subsequently released two consultation drafts guidelines on regulating stablecoin issuers. They further clarify the implementation details of the Ordinance.

These two consultation drafts are open for feedback until 30 June 2025, reflecting Hong Kong’s efforts to be aligned with global regulatory trends with respect to stablecoins and broader virtual assets regulations.

1. Draft Guideline on Supervision of Licensed Stablecoin Issuers (Consultation Draft) - link

This Draft Guideline intends to provide further practical and operational guidance to licensed issuers of “specified stablecoins” (which, based on the Ordinance in its draft form before it passed, intends to refer to FRS) in respect of the minimum criteria that licensed issuers of “specified stablecoins” must meet:

Key Topics	Summary of Key Requirements
Reserve Asset Management	Full backing: Specified stablecoins of the type in circulation must be fully backed (at least on a one-to-one basis) by reserve assets pool at all times. There should also be appropriate over-collateralisation to cover market risks. Any custodial arrangements will not compromise its full backing. Regular reconciliation should be conducted between market value of reserve assets and the par value of the outstanding specified stablecoins in circulation. Asset composition: Reserve assets must be of high quality and high liquidity with minimal investment risks. The HKMA provided guidance on examples of the forms of reserve assets (e.g. bank deposits with a term of no longer than 3 months, government bonds that meet certain qualitative and quantitative requirements, collateralised cash receivables from overnight reverse repurchase agreements, etc.). Referenced currency: Unless with HKMA’s prior written approval, the reserve assets should be denominated in the same currency as the specified stablecoins, or if there is more than one referenced currency, the reserve assets should be denominated in the referenced currencies in the same ratio as that to which the specified stablecoins are referenced. Segregation and safekeeping: Reserve assets of each type of specified stablecoins must be segregated from the licensed issuer’s own assets and other pools of reserve assets and safeguarded with regulated custodians – e.g. by way of trust arrangements to ensure effective segregation. Non-interest bearing: Licensed issuers must not pay, or permit to be paid, any interest or interest-like incentive in relation to the specified stablecoins it issues. Disclosure and reporting: Licensed issuers must regularly disclose reserve composition and provide attestations from independent auditors. Audits should be regularly conducted on its reserve assets, with audit reports submitted to the HKMA.
Issuance, Redemption and Distribution	Issuance requirements: Issuance of specified stablecoins must be prudent, customer-driven, promptly executed, fiat-backed, and matched by reserve assets in corresponding referenced currency ratios. Redemption requirements: (a) licensed issuers must allow redemption at par value; (b) holders have rights to pro rata reserve asset disposal and shortfall claims, including in insolvency; (c) independent legal opinion should be obtained to demonstrate compliance with (a) and (b) above; (d) redemptions should be processed within one (1) business day, and any fees charged should be reasonable with no unduly burdensome conditions for redemption. Distribution requirements: Third party distribution arrangements for specified stablecoins should not adversely affect the prudence and soundness of the issuance. The licensed issuer should undertake diligence on the third party distributors on their legal and regulatory compliance posture (e.g. whether they are permitted offerors). Secondary market liquidity arrangements must support price stability and mitigate conflicts of interest.
Customer onboarding	Licensed issuers must implement robust onboarding and AML/CFT procedures, ensure jurisdictional compliance, prevent unlawful access, and detect location spoofing through technical controls like IP checks and VPN detection.
Disclosure and Reporting	Licensed issuers must disclose redemption terms publicly, conduct compliance audits, and report material breaches or non-compliance to the HKMA immediately.
Minimum paid-up share capital	Licensed issuers must maintain at all times a paid-up share capital of at least HKD25 million (or an equivalent amount that is freely convertible into HKD). The HKMA may, as a licensing condition, request additional capital to be paid. That said, these capital requirements do not apply to issuers that are authorised institutions (e.g. banks).
Risk management	Risk Governance and Risk Management Framework: Licensed issuers must implement robust, three-tiered risk governance with independent oversight, clear responsibilities, and direct reporting to senior management and the Board. Licensed issuers must also implement comprehensive, documented frameworks to manage all material risks. Credit, liquidity and market risks: Licensed issuers must identify, assess, and manage credit, liquidity, and market risks. This includes monitoring counterparty exposures and ensuring sufficient liquidity buffers. Stress testing and scenario analysis should be conducted regularly, and risk limits must be clearly defined, documented, and approved by the Board. Technology risk management: Licensed issuers must implement a comprehensive technology risk management framework to ensure the security, resilience, and integrity of systems supporting specified stablecoin issuance, redemption, reserve management, and token lifecycle operations – e.g.: Robust controls should be taken over token generation, burning, and transfer processes; Wallet infrastructure must be designed to safeguard user assets, with secure wallet provisioning, access controls, and monitoring; Private keys must be securely generated, stored, rotated, distributed, secured, recovered, and accessed only by authorized personnel under strict protocols. Logs should be maintained for the full lifecycle of seeds and/or private keys; The framework must also address risks from system failures, cyber threats, and third-party technology providers; and Regular penetration testing, vulnerability assessments, and independent audits are required. Operational risk management: Licensed issuers must establish a comprehensive framework to manage operational risks, including those arising from internal processes, people, systems, and external events. This includes implementing strong internal controls, segregation of duties, and escalation procedures. Outsourcing arrangements must be subject to due diligence, risk assessments, ongoing monitoring, and material outsourcing arrangements should also be notified to the HKMA. Reputational risks: Licensed issuers must actively manage reputational risk by maintaining high standards of conduct, transparency, and responsiveness. This includes monitoring public perception, addressing customer complaints promptly, and notifying the HKMA of any incidents that may have a material adverse effect on its reputation. Incident Management: Licensed issuers must establish and maintain effective incident management and business continuity frameworks to ensure operational resilience. They must cover critical functions and include coping with liquidity stress, mitigating potential disruption to third-party provided services, maintaining robust back-up records, etc.
Corporate Governance	Licensed issuers must establish a sound corporate governance framework that ensures effective oversight, accountability, and decision-making – e.g. the Board remains responsible for overall strategy, risk appetite, and regulatory compliance. Senior management ensures operational alignment. Independent oversight functions— compliance and internal audit—must be clearly empowered, adequately resourced, and functionally independent to support effective governance and risk control, etc.
Business Practices and Conduct	Information and accounting systems: Licensees must maintain accurate, accessible, and auditable information systems, covering on/off-chain data, with strong recordkeeping, backup, and regulatory access controls. Disclosure and reporting: The licensed issuer should issue a white paper detailing the specifications of the specified stablecoins, the reserve assets management arrangement, issuance, redemption and distribution mechanisms, and the underlying technology. Data privacy compliance: Licensed issuers are expected to comply with the Personal Data (Privacy) Ordinance and its associated guidelines. Complaints handling: Licensees must provide fair, independent, and accessible complaint handling with proper governance, clear procedures, third-party coordination, and sufficient recordkeeping with feedback provided to the HKMA.

2. Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Stablecoin Issuers) - link

This Draft Guideline, aligned with Hong Kong’s Anti-Money Laundering and Counter-Terrorist Financing Ordinance (“AMLO”), outlines AML/CFT requirements for prospective licensed issuers of specified stablecoins under the Ordinance.

Given the money laundering and terrorist financing risks that may arise in the issuance of specified stablecoins (which are no different from virtual assets under the AMLO), and consistent with international AML/CFT standards and trends, the HKMA intends to extend the application of AMLO to licensed issuers of specified stablecoins.

As an overarching approach, licensed issuers should adopt a risk-based approach and conduct institutional ML/TF risk assessments. Specifically:

Licensed issuers must perform customer due diligence for all stablecoin minting models. They must verify wallet ownership, identify custodial institutions, and apply enhanced controls for unhosted wallets — such as monitoring, reliability screening, and transaction limits — to mitigate AML/CFT risks during stablecoin issuance;
Licensed issuers must honour stablecoin redemption requests and conduct customer due diligence, including wallet verification and institutional checks for custodial wallets. For unhosted wallets, enhanced controls — such as monitoring and transaction limits — must be applied before processing redemptions to ensure compliance with AML/CFT and regulatory requirements;
Licensed issuers must monitor stablecoin transactions to prevent misuse. They should use blockchain analytics to trace transaction sources and destinations, screen wallet addresses, and detect links to illicit activity, ensuring effective AML/CFT compliance;
Stablecoin transfers are subject to the Travel Rule. Licensed issuers may act as ordering, intermediary, or beneficiary institutions and must comply with role-specific requirements outlined in Chapter 6 of this guideline to ensure AML/CFT compliance during virtual asset transfers; and
Licensed issuers must implement ongoing monitoring beyond issuance and redemption to mitigate stablecoin misuse risks. Measures include confining transactions to vetted FIs and VASPs, using blockchain analytics for screening beyond primary distribution venue, blacklisting illicit wallets, and possibly whitelisting of vetted wallet addresses or adopting closed-loop systems. The HKMA encourages tech-driven, risk-based safeguards aligned with international standards and evolving practices.

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It certainly goes without saying – this is a truly exciting time for Hong Kong. Naturally, it is widely expected (and, to be honest, welcomed) that further guidance will be introduced in the months to come. Nevertheless, as Hong Kong ushers in its new Stablecoin Ordinance, the city reinforces its ambition to be a global leader in digital finance. By establishing a clear, risk-based licensing regime for fiat-referenced stablecoins, the legislation not only addresses systemic concerns but also unlocks a new chapter of innovation and institutional confidence. For financial institutions, fintechs, and investors alike, this is more than a compliance milestone—it is a strategic inflection point. With the right governance, transparency, and market engagement, Hong Kong is poised to transform regulatory foresight into competitive advantage, anchoring its role as a trusted hub for the next generation of digital assets.

Should you require further insights into the Ordinance or assistance navigating the new regime, please contact our team.

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