Stablecoin licensing regime comes into effect in Hong Kong

What’s new? Hong Kong has officially introduced a licensing regime for fiat currency-pegged stablecoins as part of efforts to turn the city into a global crypto hub. Under the law, which came into effect on August 1, companies wishing to issue or sell stablecoins to retail investors must be licensed by the Hong Kong Monetary Authority (HKMA), which acts as the central bank.

What else is known? The licensing requirements cover a range of areas, including reserve asset management, redemption (repurchase of assets) at par value, segregation of client funds from issuers’ funds, AML protocols, disclosure, and professional suitability testing of operators.

The launch of the stablecoin regime marks the next stage in a major reform of Hong Kong’s cryptocurrency policy. From 2024, the city has implemented a cryptocurrency exchange licensing system and friendly regulations on virtual assets to maintain its status as a financial gateway between China and the world.

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This launch came shortly after Donald Trump signed GENIUS, the first US federal law on stablecoins. There are significant differences between these regulatory regimes. In Hong Kong, the HKMA is the sole regulator, while in the US, regulation is more complex and multi-layered, involving both the federal level and the states.

In addition, Hong Kong law takes into account stablecoins pegged not only to the dollar but also to other fiat currencies. This potentially makes the special administrative region of the PRC a more flexible place for issuers aiming for global adoption.

Despite its relatively small domestic market, interest in stablecoins is growing in Hong Kong, with them increasingly being viewed not only as speculative instruments but also as potential means of payment.

However, the consumer payments market in Hong Kong is already saturated: stores support Visa, Mastercard, AliPay, WeChat Pay, Octopus, and other systems. Given this situation, stablecoins are unlikely to become the main payment system shortly as a standalone product that is not integrated into existing systems.

At the same time, stablecoins have great potential for international use. Hong Kong’s global trading role gives it an advantage in cross-border transfers and payments, especially for companies experiencing difficulties with slow banking operations. Companies in mainland China are also interested in the legalization of stablecoins.

Although China’s strict regulations on cryptocurrencies do not allow the use of stablecoins, major e-commerce companies such as JD.com and AliPay are already exploring the possibilities of using stablecoins in international business.

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Hong Kong’s rules also favor large issuers, as under the new law, companies issuing stablecoins must have a minimum capital of $25 million Hong Kong dollar ($3,2 million).

As this may deter innovative startups, industry experts have proposed introducing multi-tiered capital requirements. For example, a smaller capital base should allow for a smaller issuance volume.

In addition, experts have suggested simplifying the licensing process for issuers that already have permits to operate in the US, the EU, or Singapore.

With the law coming into force, the HKMA has introduced a six-month transition period and temporary rules. Among other things, these include the issuance of temporary licenses to issuers capable of complying with regulatory requirements.

At the same time, if an issuer is unable to adapt to the new law within three months, it will be required to wind up its operations within four months.

Issuers that, in the HKMA’s opinion, are unable to comply with the new rules will be forced to cease operations within one month of receiving notification.

The HKMA declined to disclose the names of the applicants, adding that a limited number of licenses will be issued initially.