Stablecoins. They arrived promising the best of both worlds: the stability of traditional money fused with the speed and borderless nature of digital assets. They aimed to be the reliable rails upon which the crypto economy could run – facilitating trade, settlement, and access.
But reality, as it often does, proved complicated. Growth exploded, use cases multiplied, and inevitably, so did the risks, highlighted by some high-profile wobbles that sent ripples through the financial world. Regulators globally took note.
Now, Hong Kong, positioning itself as a forward-thinking digital asset hub, is making its move. On 6 December 2024, the government officially gazetted the Stablecoins Bill, laying down a formal regulatory framework. This isn’t just about managing risk; it’s a strategic play to bring clarity, attract legitimate players, and anchor stablecoin innovation within well-defined boundaries.
Following extensive consultation and sandbox experimentation, Hong Kong is drawing lines in the sand. Let’s examine what those lines look like.
What the Bill Covers
The Stablecoins Bill introduces a clear legal framework for regulating “Specified Stablecoins.” These are digital tokens secured by cryptography that claim to maintain a stable value by referencing fiat currencies (like USD, EUR, or HKD) or other HKMA-approved units of account or stores of economic value.
Importantly, not all digital assets fall under this definition. The bill excludes:
- Bank deposits
- Securities and futures
- Government or central bank-issued digital currencies
Float held in Stored Value Facilities (SVFs)
These are already regulated under existing financial laws and therefore not subject to this new regime.
What Activities Require a License
The bill outlines a list of “regulated stablecoin activities” that require a license from the HKMA. These include:
- Issuing (or marketing oneself as issuing even without actually doing so) a Specified Stablecoin in Hong Kong
- Issuing a stablecoin outside Hong Kong that is linked to the Hong Kong Dollar
- Promoting stablecoins to the Hong Kong public
- Any other activity designated by the HKMA in consultation with the Financial Secretary
Even if your stablecoin project is based offshore, if you’re targeting Hong Kong users, you’re still subject to the rules.
Who Can Apply for a License
Licenses are available to:
- Companies incorporated in Hong Kong
- Authorized Institutions (AIs) incorporated overseas (such as international banks with HK branches)
Applicants must prove they have:
- A minimum paid-up capital of HKD 25 million (or equivalent in approved foreign currency)
Sufficient reserve assets to back the full value of stablecoins in circulation - Clear operational controls and risk management policies
- A Hong Kong-based senior management team
- A clearly defined redemption mechanism for users to cash out stablecoins without unreasonable conditions or fees
Rules for Offering Stablecoins
Offering or marketing stablecoins in Hong Kong is restricted to licensed entities, including authorized institutions and SFC-licensed corporations.
Only HKMA-licensed issuers can offer their stablecoins to retail investors. Stablecoins from unlicensed issuers can only be offered to designated exempted persons, as approved by the Financial Secretary or the HKMA.
Key Compliance Requirements for Licensees
Licensed stablecoin issuers must meet strict ongoing requirements, including:
- Robust financial and operational controls
- “Fit and proper” personnel: including a CEO, alternate CEO, and Stablecoin Manager who must reside in Hong Kong
- Comprehensive risk management, AML/CFT measures, and IT security protocols
- Publishing transparent disclosures, such as a stablecoin whitepaper
- Clear procedures for complaint handling and user redemptions
- Restrictions on paying interest: stablecoins must be non-interest bearing
- Recovery and wind-down plans in case of operational failure
What Happens If You Don’t Comply
The penalties for unlicensed activity are severe:
- Up to HKD 5 million in fines
- Up to 7 years of imprisonment
- Additional HKD 100,000 per day the offence continues
Breaching license conditions can also result in penalties of HKD 400,000, plus HKD 10,000 per day for continued non-compliance.
Transitional Arrangements
If you’re already operating a stablecoin business in Hong Kong, you may be eligible for a provisional license, provided you:
- Apply within 3 months of the bill’s effective date
- Comply with the HKMA’s interim requirements
- Cease operations if your license application is ultimately rejected
What’s Next for the Bill
The Bill had its first reading in Legislative Council on 18 December 2024 and is expected to move swiftly through the legislative process. Once enacted, it will put Hong Kong firmly on the map as a regulated hub for stablecoin innovation.
More detailed licensing guidelines will be issued by the HKMA soon—so if you’re in the stablecoin space, now is the time to prepare.
Need help navigating Hong Kong’s new stablecoin rules?
Monx has been at the forefront of crypto compliance in Asia. Our experts can guide you through the licensing process, regulatory strategy, and risk management.
Reach out to us at crypto@monx.team to get started.
