Author: Jen Baiqin, Wenjing Huang
Introduction
On May 21, 2025, the passage of the Hong Kong Stablecoin Ordinance in the Legislative Council of Hong Kong marked a critical turning point in regulation. The Ordinance was gazetted on May 30, 2025 and is scheduled to come into force on August 1, 2025. Fiat-pegged stablecoins (FRS) issued in Hong Kong, issued from outside Hong Kong, or involving Hong Kong dollars are no longer in the gray area of crypto finance, but are included in a formal and institutionally regulated legal framework. The Ordinance reflects an intentional recalibration: it aims to position Hong Kong as a compliant, forward-looking virtual asset hub capable of hosting the next generation of programmable finance under the rule of law. This article analyzes the key provisions, strategic positioning, and practical impact of the Ordinance, and clarifies its differences from related technologies such as real asset tokenization (RWA).
Legal Infrastructure
The legislation constructs a complex semantic system about digital value. Stablecoins are defined not only as a functional tool, but also from technical, economic and legal dimensions: they must be cryptographically secured, used as a store of value or medium of exchange, and run on distributed ledger technology (DLT). "Specified stablecoins" are further limited to tokens that are anchored to official currencies or other units approved by the Hong Kong Monetary Authority ("HKMA").
The scope of regulated activities is wide, covering not only issuance and redemption, but also marketing, operational participation, and even indirect inducement involving Hong Kong residents. This broad definition ensures regulatory coverage while minimizing regulatory arbitrage based on geography or activity type.
The principle of legal currency support is at the core. The Ordinance clearly stipulates that any "specified stablecoin" must be redeemable in full with the legal currency to which it is pegged, especially the Hong Kong dollar. This is not only a mechanical requirement, but also a fundamental safeguard mechanism. Fiat currency backing ensures that stablecoins can operate as credible monetary instruments rather than speculative crypto assets. The HKMA requires that reserve assets must be high-quality, liquid assets (such as cash, short-term government bonds) and denominated in the same fiat currency to which the stablecoin is pegged. This eliminates currency mismatch risk, that is, the value of the reserve assets may depreciate due to the mismatch between the currency of the stablecoin and the currency of the reserve assets. In addition, it also isolates users from the risk of volatility contagion - the impact of panic selling on the stablecoin market caused by the plunge of unpegged crypto assets.
The Ordinance explicitly prohibits the use of highly volatile or illiquid assets as anchors, such as real estate tokens, commodity portfolios or mixed asset indices. If the token is not clearly redeemable for fiat currency and is not clearly backed by fiat currency, it is not considered a stablecoin and does not enjoy legal protection. This approach effectively prevents regulatory arbitrage and prevents financial engineering from blurring the line between asset-backed securities and monetary instruments, thereby reflecting Hong Kong's position on prioritizing financial stability over speculative or synthetic innovation.
Licensing Framework
The Ordinance introduces a comprehensive and prudent licensing system, emphasizing the systemic importance of stablecoin issuers. The main requirements include:
Capital Bottom Line:The minimum paid-in capital is HK$25 million.
Reserve Structure:The issuer must maintain high-quality, liquid reserve assets (such as cash, short-term government bonds) that correspond 1:1 to the circulating stablecoins.
Isolation and Legal Protection:The reserve assets must be placed in a trust or similar closed mechanism and cannot be used by other creditors in the event of bankruptcy.
Redemption mechanism:A mechanism must be in place to ensure that redemption requests are fulfilled in real time at par value. Delays or additional fees constitute statutory violations.
Governance review:The appointment of controlling shareholders, directors, and stablecoin managers must be approved by the HKMA and must continue to meet the "fit and proper person" standard and disclosure obligations.
License holders must also continue to fulfill relevant obligations, including paying annual fees, reporting major changes and annual compliance reports.
In addition, the Financial Secretary issued an announcement on June 6, allowing unlicensed issuers to offer stablecoins that are not regulated by the regulations to professional investors as defined under the Securities and Futures Ordinance, which retains a certain amount of practical space without violating the regulatory red line.
Supervisory Powers and Enforcement Tools
The HKMA’s supervisory powers are equipped with powerful tools:
Investigational Powers:Authorized investigators may request documents, conduct on-site inspections and require sworn statements.
Sanction Mechanism:The Ordinance gives the HKMA multiple levels of sanctioning powers, including fines, suspension or revocation of licenses, public warnings, confiscation orders and the appointment of statutory administrators;The HKMA has also conducted public consultation on the detailed supervisory requirements under the Ordinance, focusing on core compliance provisions such as anti-money laundering and combating terrorist financing, laying the operational details for future law enforcement.
Administrative intervention:The HKMA may appoint a statutory administrator to take over a licensee in financial difficulty - this was originally a measure reserved for systemic banks.
Prohibited conduct and criminal liability: Drawing a clear legal line
The Ordinance clearly lists the activities that actors in the virtual asset market are not allowed to engage in, enhancing legal certainty and strengthening market discipline. Key prohibitions include:
Unlicensed operation (Section 9): It is a criminal offence to engage in regulated stablecoin activities (including issuance, redemption, management) or to claim to engage in related activities, regardless of whether it is located in Hong Kong, as long as its activities are directed to the Hong Kong market;
Illegal issuance of specific stablecoins (Section 9): Providing specific stablecoins to the public without obtaining appropriate licenses is an independent criminal offence;
Advertising restrictions (Section 10): It is a crime to publish or prepare to publish advertisements indicating that it is involved in stablecoin activities or issuing stablecoins if the party is not licensed or exempted;
Fraud and misleading (Section 11):Any attempt to defraud, mislead, or make false claims in relation to stablecoin transactions is a crime, including false statements about reserve support, redemption rights, or relationships with licensed entities;
Inducement crime (Section 12):It is a criminal offence to persuade others to purchase, dispose of, subscribe for, or underwrite a specific stablecoin by making false statements or recklessly disregarding the truth.
Transitional provisions
The Ordinance is scheduled to come into effect on August 1, 2025, and has a time-limited transitional period arrangement: Stablecoin issuers that have been operating in Hong Kong before the Ordinance is officially implemented may continue to operate for six months if they submit a license application within the first three months. However, this is not an indefinite or unconditional exemption. Those who do not obtain a license must exit the market or complete the authorization process in accordance with the law.
International comparison and Hong Kong's differentiated positioning
Compared with the EU's Market Regulation on Crypto Assets (MiCA), Singapore's Payment Services Act 2019 and the US state-level remittance licensing system, Hong Kong's regulations present unique regulatory choices:
Mandatory par redemption obligations:Most jurisdictions (including MiCA and the US MTL system) allow redemption to be delayed or at the issuer's discretion. For example, MiCA allows redemption within five working days, while Hong Kong requires immediate redemption at par.
Introduction of statutory management mechanism:The "pre-bankruptcy intervention power" rarely seen in crypto asset legislation has been explicitly introduced in the Hong Kong Ordinance, which was originally a bank-exclusive tool.
Intersection with bank supervision:Regulatory requirements such as capital requirements, reserve segregation, and "proper person" standards are similar to those of traditional deposit institutions, blurring the line between token issuers and traditional financial intermediaries.
This strategic difference reflects Hong Kong's priority for stability and fiat currency anchoring, rather than simply pursuing market growth or issuer flexibility.
Tokenization of physical assets: key distinction
A common misunderstanding is that the compliance of stablecoins means that RWA is also indirectly recognized. This is not the case. The Ordinance does not provide a direct path or legal recognition for RWA projects.
Stablecoins operate within the framework of fiat currencies, while RWAs involve tokenizing domestic assets (such as real estate, stocks, and bonds). The regulations emphasize that there are still gaps in the supervision of RWAs, and the main challenges include:
Cross-border asset transfers:If assets located in mainland China are tokenized, foreign exchange controls, securities regulations, and capital account supervision are involved.
QFII restrictions:Domestic assets may not be used for tokenization across borders unless a QFII/RQFII license is obtained through traditional channels.
Stablecoin license ≠ RWA legality:Obtaining an FRS license does not mean that you can legally engage in RWA business, especially for assets that are illiquid, unverified, or in a "firewall" state.
RWA projects need to address their independent legal challenges. Stablecoins can be used as payment or collateral tools in the RWA ecosystem, but they cannot solve the core legal issues of cross-border asset circulation.
Practical impact and industry adjustments
The new regulations will fundamentally change the way virtual asset companies operate in Hong Kong. Both issuers and investors must re-examine their strategies, partners and legal risks:
Issuers: It is no longer an era of quick product launches. Stablecoin issuance requires sound financial governance, real currency support and clear legal responsibilities. Capital requirements starting from HK$25 million, audit fees, reserve checks and real-time redemption systems have significantly raised the threshold. Unlicensed issuance is no longer a "risk" but a criminal offense.
Banks and trust institutions: They can naturally become reserve custodians, compliance verifiers and risk managers. In the future, they may develop services such as stablecoin treasury management and KYC support, but they also need to upgrade their systems to support tokenized transactions and assess legal liabilities.
Investors: Enhanced protection and reduced choices. The mandatory redemption right and reserve isolation have increased investment confidence. Although the initial stablecoin selection may be reduced, in the long run, it will be easier to identify truly compliant, legal currency-backed stablecoins.
Global platforms: Can no longer "incidentally" provide stablecoins to Hong Kong. Under the new regulations, a dedicated compliance strategy must be established. Unlike the EU's MiCA passport system, Hong Kong does not recognize external licenses. If you promote or provide asset basket anchor tokens to Hong Kong users, you are likely to violate advertising laws.
Developers and DeFi builders: Technology cannot override the law. Any protocol development that interacts with fiat stablecoins must prioritize compliance from the outset and embed a system for verifying the status of stablecoin issuers.
Conclusion
Hong Kong’s stablecoin ordinance is a deliberate strategic choice: to bring crypto finance into an institutional accountability system. By integrating licensing, regulation, and enforcement into a unified framework, Hong Kong sends a clear signal to global markets that digital finance must operate under the rule of law. Market participants should be prepared for rigorous audits, reserve checks, and ongoing regulatory dialogue. Those who adapt will not only survive, but will also shape the future of compliant digital finance in Asia.
But the deeper question remains: Can programmable money thrive in a rule-of-law economy? Can decentralized technology coexist with centralized regulation? Can crypto innovation win public trust without enforceable redemption rights and institutional accountability? These challenges are further amplified by the following unresolved rifts: how to balance AML/CFT supervision while retaining anonymity; and how mainland capital controls interact with cross-border circulation of Hong Kong dollar stablecoins or tokenization of mainland assets.
These tensions reinforce Hong Kong’s core proposition: the key to financial evolution is not speed, but sovereignty, stability and systemic integrity. Only regulation can build trust where technology cannot prove its own trust. Without trust, innovation will fail.
Joy
Weatherly
Miyuki
Weiliang