Understanding The Stablecoins Ordinance (Part 1)

Introduction

As digital currencies continue to gain popularity worldwide, Hong Kong has enacted the Stablecoins Ordinance (Cap. 656) ("SCO"), ushering in a new era for digital asset regulation. Officially published on 30 May 2025 and effective from 1 August 2025, the SCO empowers the Hong Kong Monetary Authority ("HKMA") to regulate fiat-referenced stablecoins and related activities, aiming to safeguard monetary stability and protect the interests of the public. In this newsletter, we examine the four key concepts that sophisticated investors and finance professionals must understand to navigate this new regulatory landscape.

Key concepts in the SCO

1. What is a "stablecoin"?

Under section 3 of the SCO, a "stablecoin" is defined as a digital asset that:

• uses advanced security (cryptography) to protect transactions;
• is expressed as a unit of account or a storage of economic value;
• can be used as a means of payment, for investment, or for settling debts;
• is transferred, stored, or traded electronically;
• runs on blockchain or similar distributed ledger technology; and
• is designed to keep a stable value by referencing a particular asset (like a currency) or a group of such assets.

Exclusions: Stablecoins do NOT include tokens issued by a central bank or government, customer loyalty points, in-game assets, securities or futures contract defined under the Securities and Futures Ordinance (Cap. 571), stored value facilities deposit under the Payment Systems and Stored Valued Facilities Ordinance (Cap. 584), or deposit under the Banking Ordinance (Cap. 155).

2. What is a "specified stablecoin"?

A "specified stablecoin" represents the subset of stablecoins subject to SCO's regulatory regime. According to section 4 of the SCO, it includes tokens that:

• keep their value (wholly or partly) by being pegged to one or more official currencies, such as the Hong Kong Dollar ("HKD"), or to other units of account or a storage of economic value specified by the HKMA; or
• are designated as such by the HKMA.

3. What is a "regulated stablecoin activity"?

A "regulated stablecoin activity" is defined under section 5 of the SCO to include:

• issuing specified stablecoins in Hong Kong;
• issuing specified stablecoins outside Hong Kong that reference HKD; and
• any other activity that the HKMA considers relevant to Hong Kong's monetary or financial stability, or its role as an international financial centre.

If a person actively markets, whether by itself or through another person, and whether in Hong Kong or elsewhere, to the Hong Kong public that it carries on, or purports to carry on, a regulated stablecoin activity, it will also be regarded as carrying on a regulated stablecoin activity.

4. What is an "offering" of specified stablecoin?

Under Section 6 of the SCO, "offering" means providing sufficient information in the course of business that allows another person to decide whether to acquire a specified stablecoin. Such information shall cover 3 areas, namely the specified stablecoin itself, the terms of offer, and the channels of acquisition. The communication may be in any form and by any means, ensuring technology-neutral application.

If a person actively markets, whether by itself or through another person, and whether in Hong Kong or elsewhere, to the Hong Kong public that it carries on, or purports to carry on, an activity that constitutes an offering of specified stablecoin, it will also be regarded as offering specified stablecoin.

Conclusion

The SCO represents Hong Kong's commitment to integrating stablecoins into its financial system while promoting financial stability and innovation. The above key concepts create a framework that balances innovation with investor protection and financial stability. We will discuss other important aspects of the SCO in our upcoming newsletters.

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.