Exploring the Potential: Could the New Stablecoins Legislation Establish Hong Kong as Asia's Preeminent Virtual Asset Center?
Hong Kong Introduces Comprehensive Stablecoin Legislation
Hong Kong is set to become the first major international financial centre to implement comprehensive stablecoin legislation, with the new Stablecoins Ordinance taking effect on August 1, 2025. The ordinance aims to reshape the industry by addressing investor protection and market stability issues.
Under the new ordinance, any entity issuing fiat-backed stablecoins in Hong Kong, or issuing stablecoins pegged to the Hong Kong dollar value anywhere, must obtain a license from the Hong Kong Monetary Authority (HKMA). The requirements for FRS issuers are comprehensive and stringent, including AML/CFT compliance, asset segregation, redemption guarantees, and maintaining a minimum capital.
To secure a license, issuers must be a Hong Kong-incorporated company or an authorized institution; if incorporated overseas, they must be authorized under the Banking Ordinance. Issuers must have a realistic, viable business plan that demonstrates sufficient demand for the stablecoins issued to sustain the business. A minimum paid-up share capital of HK$25 million is required, along with liquid assets sufficient to meet obligations as they fall due.
Each stablecoin must be fully backed by high-quality, highly liquid reserve assets in the same fiat currency. The ordinance differentiates fully backed, credible stablecoins from riskier instruments, building confidence among users and regulated financial institutions. Holders of regulated stablecoins have direct claims in the event of issuer insolvency.
The HKMA has been granted extensive powers to investigate and enforce compliance, with certain breaches constituting criminal offences. The ordinance provides clear redemption rights and legal protections for stablecoin holders. In insolvency situations, holders can direct the reserve pool's disposal and claim any shortfall.
The Stablecoins Ordinance is generating significant market interest, with financial giants like Ant Group and Standard Chartered Bank reportedly applying for licenses. However, concerns have been raised about the framework's restrictive nature. Hwang, an industry expert, suggests that it could make it illegal to offer popular stablecoins like USDT unless the issuer holds one of a limited number of licenses. This could particularly impact family offices and other institutional investors who regularly use these stablecoins for cryptocurrency transactions.
Despite these concerns, Hwang remains optimistic about Hong Kong's digital asset future, anticipating the VAOTC (Virtual Asset Over-the-Counter) regime to address the issues raised about the Stablecoins Ordinance. Hwang also sees tokenization of traditional financial assets and digitalization of national currencies, including the RMB, as key development areas for Hong Kong's digital currency leadership.
Sources:
- Hong Kong's Stablecoins Ordinance: A New Era for Digital Currency
- Hong Kong's Stablecoins Ordinance: A Comprehensive Approach to Regulation
- Hong Kong's Stablecoins Ordinance: Key Requirements for Issuers
- Hong Kong's Stablecoins Ordinance: Ensuring Financial Stability and Investor Protection
- Hong Kong's Stablecoins Ordinance: A Game Changer for the Digital Asset Market
- The new Stablecoins Ordinance in Hong Kong requires any business, such as Ant Group or Standard Chartered Bank, to comply with stringent AML/CFT regulations when issuing stablecoins.
- Under the ordinance, issuers must have a realistic, viable business plan that demonstrates the demand for their stablecoins to sustain their business lifestyle, and meet requirements like maintaining a minimum capital and obtaining a license from the Hong Kong Monetary Authority (HKMA).
- The Stablecoins Ordinance in Hong Kong aims to reshape the technology sector by differentiating fully backed, credible stablecoins from riskier instruments, thus building confidence among users and regulated financial institutions, shaping the future of the financial industry.
