Introduction
Hong Kong has clearly positioned itself as a global leader in the cryptocurrency space. At the heart of this agenda lies Policy Statement 2.0, a visionary roadmap issued by the Hong Kong government that outlines a commitment to building a trusted and innovative digital asset ecosystem — one that balances technological advancement with rigorous regulatory oversight.
Central to the Policy Statement 2.0 is the 'LEAP' framework, an ambitious strategy designed to create a unified regulatory regime, expand tokenized financial products, foster cross-sector collaboration, and nurture a sustainable talent pipeline.
But perhaps the most significant leap forward is the introduction of a dedicated licensing regime for stablecoin issuers with the new Stablecoins Ordinance (the 'Ordinance'). As attention turns to the implementation of the new Ordinance, Hong Kong reaffirms its role as a pioneer, offering a blueprint for responsible, sustainable, and forward-looking regulation in the age of digital transformation.
The Stablecoins Ordinance at a glance
Passed on 21 May 2025 and set to come into effect on 1 August 2025, the Ordinance provides a structured licensing framework for stablecoin issuers ('Issuers') operating in Hong Kong, with a strong emphasis on investor protection and financial stability. Key aspects of the Ordinance include the following:
I. What is considered a stablecoin?
Broadly speaking, stablecoins are virtual assets that are designed to maintain a stable value relative to certain assets, typically traditional fiat currencies. They are defined under the Ordinance as an asset which is:1
- Expressed as a unit of account or store of economic value;
- Intended to be used as a medium of exchange for payment for goods or services, discharge of a debt or for investment purposes;
- Can be transferred, stored or traded electronically; and
- Operated on a distributed ledger or an equivalent technological infrastructure.
II. Licensing requirements for issuers
a) Incorporation
Issuers must be a Hong Kong incorporated or registered (for non-Hong Kong companies) company, or an authorized institution incorporated outside Hong Kong. 2
b) Financial resources
Issuers must maintain adequate financial resources to support their operations and ensure stability. This includes a minimum paid-up share capital of HK$25,000,000 or an equivalent level of financial reserves, subject to approval by the Hong Kong Monetary Authority. 3
c) Reserve management
The Ordinance imposes stringent requirements on reserve management to ensure the stability and reliability of issued stablecoins. Issuers must: 4
- Ensure reserves sufficiently cover all outstanding stablecoin liabilities;
- Maintain these reserves in high-quality and liquid assets; and
- Ensure these reserves are subject to regular audits by independent third parties and provide periodic compliance reports to regulators.
d) Redemption rights
The Ordinance requires Issuers to uphold clear and enforceable redemption rights for holders. Issuers must: 5
- Guarantee each holder the right to redeem stablecoins issued by the licensee;
- Avoid imposing overly burdensome conditions on the redemption process; and
- Refrain from charging excessive fees for redemption, ensuring all fees are reasonable.
- In cases of insolvency, holders are granted priority rights, including the ability to: 6
- Direct the disposal of the corresponding reserve asset pool to redeem all outstanding stablecoins on a proportional basis; and
- Claim against the Issuer for any shortfall if assets from the reserve pool are insufficient to meet redemption obligations in full.
e) Risk management
Issuers are obligated to establish comprehensive risk management frameworks and robust internal controls to address key risks, including operational, financial, technological, and compliance risks. These frameworks include:
- Policies to safeguard data security and integrity, particularly personal data; 7
- Effective fraud detection mechanisms and controls against money laundering and terrorist financing; 8 and
- Measures to manage conflicts of interest, ensure business continuity, and facilitate complaints-handling processes.9
f) Disclosure
Transparency is a cornerstone of the Ordinance. Issuers are required to provide clear and accessible information to both holders/prospective holders and regulators to assess the safety and soundness of their stablecoin arrangements. Key requirements include:
- Publishing detailed and transparent disclosures for each issued stablecoin;10
- Maintaining timely updates on policies related to, inter alia, complaints handling, as well as risks and conflict of interest management;11 and
- Keeping the Hong Kong Monetary Authority informed of the identity of each controller of the Issuer to ensure accountability and compliance.12
g) Governance
The Ordinance enforces stringent governance standards to promote trust and accountability. Issuers must ensure that:
- Controllers, chief executives, directors, stablecoin managers, and licensee controllers meet fit and proper standards.13
- Individuals responsible for overseeing day-to-day stablecoin operations possess relevant expertise and qualifications.14
Key implications for investors
Starting in August, the Hong Kong Monetary Authority will begin accepting licensing applications under the Ordinance. For investors, the Ordinance signals an era of robust compliance and risk management. The risks associated with stablecoins — ranging from technology failures to reserve mismanagement — are now front and center, and regulatory scrutiny of these risks is imperative.
Stablecoins are a crucial link between traditional finance and the digital asset ecosystem, but they also pose unique challenges. Effective risk management will thus be a focal point not only for Hong Kong, but for regulators worldwide. To meet the requirements of the Ordinance, Issuers must develop strong capabilities in reserve asset management, price stabilization, redemption policy implementation, technological security, and anti-money laundering (AML) controls.
The Ordinance is a clear signal of the city's commitment to fostering innovation, while simultaneously safeguarding financial stability and consumer interests. As global attention turns to the regulation of digital assets, Hong Kong's balanced, forward-looking approach may serve as a model for other jurisdictions seeking to harness the benefits of blockchain technology without compromising on safety or soundness.
Footnotes
1. Section 3 of the Stablecoins Ordinance
2. A licensed bank or deposit taking company incorporated outside of Hong Kong
3. Section 4, Schedule 2 of the Stablecoin Ordinance
4. Section 5, Schedule 2 of the Stablecoin Ordinance
5. Section 6(1), Schedule 2 of the Stablecoin Ordinance
6. Section 6(4), Schedule 2 of the Stablecoin Ordinance
7. Section 9, Schedule 2 of the Stablecoin Ordinance
8. Section 10, Schedule 2 of the Stablecoin Ordinance
9. Section 12, Schedule 2 of the Stablecoin Ordinance
10. Section 13, Schedule 2 of the Stablecoin Ordinance
11. Sections 5, 9, 13 and 14, Schedule 2 of the Stablecoin Ordinance
12. Section 7, Schedule 2 of the Stablecoin Ordinance
13. Section 7, Schedule 2 of the Stablecoin Ordinance
14. Section 8, Schedule 2 of the Stablecoin Ordinance
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
