Hong Kong's "Stablecoin Regulation Draft" officially takes effect: Global stablecoin regulation enters the "Hong Kong moment"

Today (1), a milestone moment in the history of financial development in Hong Kong has arrived — the "Stablecoin Regulation" has officially come into effect. On July 29, the Hong Kong Monetary Authority (HKMA) officially released the "Regulatory Guidelines for Licensed Stablecoin Issuers" and the "Guidelines for Anti-Money Laundering and Counter-Terrorist Financing (Applicable to Licensed Stablecoin Issuers)" and other supporting documents, paving the way for the implementation of the regulation. This makes it the world's first comprehensive key framework specifically targeting fiat stablecoins. This groundbreaking regulatory framework marks an important step for Hong Kong in the field of asset regulation within the important financial system.

The Chief Executive of the Hong Kong Monetary Authority, Eddie Yue, emphasized when announcing this news on July 23 that the new regulations aim to "curb various fraudulent activities that have recently frequently utilized stablecoin, and comprehensively protect investors' rights and interests." In the past year, several stablecoin investment scams promising high returns have occurred in Hong Kong, resulting in many investors losing all their capital.

1. The Imminent Regulatory Revolution: Hong Kong's Strategic Ambitions

In recent years, the global stablecoin market has experienced explosive growth. Data shows that the total market capitalization of stablecoins has surpassed $250 billion, with a total trading volume reaching $20 trillion in 2024, far exceeding the trading volume of Bitcoin during the same period. Stablecoins, with their stable value and convenient transactions, have become important tools for cross-border payments, trade settlement, and financial innovation.

The recent legislation in Hong Kong is not a reactionary move, but a necessary choice in response to the chaotic market. With the rapid expansion of the digital currency market, stablecoins have become a key bridge connecting traditional finance and the crypto world, but they have also become a hotbed for fraudulent activities. Yu Weiwen specifically pointed out: "In the past, many investors suffered significant losses due to their blind trust in promises of high stable returns." These projects, which claim to offer "stable returns," actually hide enormous risks, and the lack of effective regulatory mechanisms leaves investors without recourse.

This concern is not unfounded. Currently, US dollar stablecoins account for over 95% of the global market, far exceeding the dollar's share in the international payment sector, demonstrating a highly concentrated structural risk in the market. The international financial landscape is also undergoing drastic changes. After Trump's return to the White House, the United States is consolidating its dollar stablecoin hegemony through the "Genius Act," even banning the issuance of CBDCs. As an international financial center, Hong Kong must seize the high ground in this digital financial competition.

Against this backdrop, the Legislative Council of the Hong Kong Special Administrative Region passed the "Stablecoin Ordinance" on May 21, 2025, after three readings. Following a two-month preparation period, it was finally confirmed to be officially implemented on August 1. This legislative process reflects Hong Kong's shift from a cautious wait-and-see attitude to an active embrace of regulation, showcasing its strategic ambition to position itself as a "global innovation center in the digital asset space." Hong Kong's response strategy is clear and strong: to attract compliant capital through a prudent regulatory framework and avoid repeating the mistakes of "loosen first, tighten later." Yu Wai-man emphasized, "Although stricter requirements may limit short-term expansion, they are more conducive to the long-term healthy development of the market compared to the subsequent cleanup of chaos."

2. Core Pillars of Supervision Framework: Strict License Management and Reserve Guarantee

The core of the "Stablecoin Regulation" lies in establishing a regulatory system that is "risk-based, compliant and orderly, and promotes innovation." Its key points include:

Strict licensing management system: From August 1, any institution issuing stablecoins or promoting stablecoin products to the public in Hong Kong must obtain a license issued by the Monetary Authority. It is worth noting that the regulatory scope is not limited to local issuers in Hong Kong; overseas issuers of stablecoins pegged to the Hong Kong dollar or targeting the Hong Kong market also need to be licensed, effectively closing the regulatory arbitrage gap. The threshold for license applications is extremely high, with applicants required to meet a minimum paid-up capital requirement of HKD 25 million and demonstrate a sound risk management system and qualified corporate governance structure. The Monetary Authority has clearly stated that considering the emerging nature and risk factors of stablecoins, only a limited number of licenses will be issued in the initial stage. Currently, dozens of institutions have approached the Monetary Authority for exploratory applications.

100% Reserve Asset Guarantee: To prevent the recurrence of events similar to the Terra/Luna collapse, regulations require that stablecoins must be 100% backed by highly liquid assets (such as cash, short-term government bonds, etc.), and the reserve assets must be stored separately from the issuer's other assets, audited by an independent third party. This design ensures that stablecoin holders can redeem at face value at any time, avoiding the risk of bank runs due to insufficient reserves. The redemption mechanism is also subject to strict regulations, and except for special approval circumstances, licensed issuers should process valid redemption requests within 1 working day.

Strict Control of Financial Crime Risks: In view of the anonymity characteristics of stablecoins in cross-border transactions, the Monetary Authority requires licensed institutions to establish strict customer identity verification (KYC) and transaction monitoring mechanisms to reduce the risks of Money Laundering and terrorist financing. The Monetary Authority is granted extensive investigative powers and can intervene in investigations when illegal activities are suspected, including freezing assets and searching items as coercive measures.

III. The Power to Reshape Market Dynamics: License Competition and Capital Flows

After the implementation of the regulations, Hong Kong's digital financial market will undergo a deep reshuffle. In the short term, the competition for licenses has become intense. Standard Chartered Bank, JD.com, and Circle Tech, which have entered the sandbox testing, are seen as the top seed players, while traditional financial giants like HSBC and Bank of China (Hong Kong) are also gearing up.

The capital market reacted strongly to the "license premium." After obtaining a full license for virtual assets, Guotai Junan International's stock price soared 458% throughout the year; Jin Yong Investment's stock price surged 533% in a single day after announcing a partnership with AnchorX; and medical technology company Huajian Medical's stock price increased by 60% within two days just for submitting an application intent. The Monetary Authority has noted signs of market overheating, with Yu Weimen warning in July of "over-conceptualization and bubble trends," urging investors to remain calm. Some concept stocks have severely deviated from their fundamentals, with a dynamic price-to-earnings ratio as high as 92 times.

In the medium term, cross-border payments will welcome an efficiency revolution, with stablecoins enabling "minute-level" cross-border transfers, and transaction fees being less than 1% of traditional methods. The "Multilateral Central Bank Digital Currency Bridge" led by the Monetary Authority has connected 29 banks in 11 countries, with deep participation from Chinese technology companies. The long-term impact is even more profound, as regulations pave the way for offshore RMB stablecoins, which are likely to be initially pegged to offshore RMB and used for cross-border trade payments and tokenized asset transactions for institutional investors. Hong Kong's Secretary for Financial Services and the Treasury, Christopher Hui, pointed out that this aligns with the principle of "same activity, same risk, same regulation," which will consolidate Hong Kong's position as an international financial center.

With the implementation of regulatory systems, the market has already seen significant changes:

Short-term: Rational Regression

Strict licensing requirements will curb excessive speculation in the market, prompting the stock prices of some concept-driven listed companies to return to rationality. Investors will pay more attention to the actual application scenarios and technological capabilities of institutions rather than mere concept speculation. Since late July, Hong Kong's stablecoin concept stocks have experienced a wave of rising trends, with institutions like Huaxing Capital Holdings and OSL Group, which have complied with early layouts, being favored by funds. As regulatory details become clearer, the market will enter a stage of removing the false and preserving the true.

Long-term: Compliant Innovation

For institutions that truly possess innovative capabilities and regulatory awareness, the standardized development of the Hong Kong stablecoin market will open up huge opportunities. The "sandbox" testing mechanism launched by the Monetary Authority has attracted participation from institutions such as JD Coin Chain Technology and Standard Chartered Bank (Hong Kong). The innovative applications of these institutions in areas such as payments, supply chain management, and capital markets will drive stablecoins to expand from being merely a medium of exchange towards diverse scenarios such as cross-border payments, supply chain finance, and tokenization of real-world assets (RWA). Boston Consulting Group predicts that by 2030, the market size of RWA will rise to $16 trillion, while the penetration rate of stablecoins in this field is expected to reach 30%-50%.

IV. Hong Kong's Deep Strategy Layout: Consolidating the Status as an International Financial Center

The implementation of the "Stablecoin Regulation" is a key part of Hong Kong's construction of a digital asset regulatory system. In October 2022, the Hong Kong SAR government issued the "Policy Declaration on the Development of Virtual Assets in Hong Kong," which for the first time proposed an open and compatible attitude towards global virtual asset innovation. In June 2023, Hong Kong implemented a mandatory licensing system for Virtual Asset Trading Platforms (VATP).

In the "Hong Kong Digital Asset Development Policy Declaration 2.0", the SAR government reiterates its commitment to making Hong Kong a global innovation center in the digital asset field, focusing on supporting stablecoins and tokenization. This series of policy combinations demonstrates Hong Kong's complete implementation path from policy declaration to specific regulations, gradually constructing a digital asset regulatory system that covers all aspects including trading platforms, custody, and stablecoins.

In the long run, Hong Kong can leverage its mature financial market advantages and institutional innovations to provide a testing platform for the internationalization process of various fiat currencies, including the Renminbi. In the context where the US dollar stablecoin dominates (accounting for over 95%), if a stablecoin pegged to the Hong Kong dollar can be successfully developed, it will provide valuable experience for the internationalization of other fiat currencies.

Hong Kong is promoting stablecoin legislation, backed by three strategic considerations:

Consolidate the status of an international financial center:

The current global stablecoin market size is approximately $250 billion, with 90% pegged to the US dollar (such as USDT, USDC), giving the United States absolute control over the discourse. Hong Kong aims to reduce reliance on the US dollar by launching a compliant Hong Kong dollar stablecoin (HKDG), allowing international companies to settle in Hong Kong dollars.

Attracting Global Capital and Technology Companies:

Hong Kong offers the most open stablecoin policy in Asia: companies can issue coins as long as they are compliant, and stablecoin transactions are tax-free, while Singapore still imposes a consumption tax. The policy dividends have begun to show results— in 2024, giants like Circle (the issuer of USDC) and Ripple have settled in Hong Kong; Chinese companies such as Huawei, Tencent, JD, and Alibaba are also testing HKD stablecoin for cross-border payments.

National Financial Strategy Services:

China's push for the internationalization of the Renminbi faces many challenges, with Hong Kong stablecoin becoming a "safe testing ground." Under the framework of the "Belt and Road" initiative, African and Southeast Asian countries can use Hong Kong dollar stablecoins to procure Chinese goods, avoiding fluctuations in the US dollar exchange rate.

Hong Kong's ambitions are clear: in the short term, to seize the stablecoin market; in the medium term, to become a global Web3 financial center; and in the long term, to create a dual system of "digital RMB + HKD stablecoin" to counter the dollar hegemony.

V. Regulatory Wisdom for Steady Progress: Transition Period and License Issuance

In the face of market enthusiasm, the Monetary Authority maintains a rare clarity. Yu Weiwen warns: "Dozens of institutions are actively engaging with the Monetary Authority team, but many are only at the conceptual stage, lacking awareness and ability to manage risks." The most concerning issue for regulatory agencies is the "bank run risk." HSBC Global Research warns that if users concentrate their redemptions, issuers may be forced to sell off reserve assets, potentially triggering market volatility—if the reserves are in HKD assets, it will affect local asset prices; if they are in USD assets, it could impact the HKD exchange rate. The anti-money laundering defense line is also a regulatory focus. The Monetary Authority requires licensees to establish strict geographic blocking mechanisms in the accompanying guidelines, using technologies such as IP address and GPS positioning to prohibit conducting business in restricted jurisdictions.

The transitional arrangements highlight regulatory wisdom, establishing a 6-month transition period after the regulations come into effect, during which unlicensed institutions are prohibited from promoting to retail investors. Yu Weiwen emphasized that this period is a "critical phase for the market to eliminate the weak and retain the strong," and truly compliant and capable projects will gain greater development space. Regulatory agencies also maintain an open attitude, with the Monetary Authority announcing that it will jointly review applications with the stablecoin advisory committee and may hold individual meetings with senior applicants to ensure the quality of approvals.

Today (August 1), Hong Kong's "Stablecoin Regulation" officially takes effect! The first batch of licenses has only been issued to a few companies, making it a focal point of attention. As of now, the Hong Kong Monetary Authority has not issued any licenses. Furthermore, the planned issuance timeline is later than expected. On July 29, the Hong Kong Monetary Authority released a series of consultation documents and held a technical briefing. The Deputy Governor of the Hong Kong Monetary Authority, Chen Weimin, revealed at the meeting that the first phase of licenses will be issued in early 2026, with the number of initial licenses being in single digits. Previously, the Hong Kong Monetary Authority has repeatedly emphasized a "high threshold," "only a few licenses in the first batch," and "prior communication," which has been widely interpreted by the market as an "invitation-based" approach.

The Hong Kong Monetary Authority (HKMA) stated that the "invitation system" is an unofficial term. On July 31, a representative from the HKMA told a reporter from the 21st Century Business Herald that the "invitation system (by invitation)" does not fully reflect the licensing model of the HKMA, as in fact, institutions that are willing and interested in applying can proactively communicate with the HKMA regarding licensing matters. A week earlier, HKMA President Eddie Yue revealed that although it has been made clear that only a few stablecoin licenses will be granted in the initial phase, dozens of institutions have already proactively contacted the HKMA team. The HKMA's announcement on July 29 also indicated that it encourages institutions interested in applying for licenses to contact the authority by August 31, 2025, so that the HKMA can convey regulatory expectations and provide appropriate feedback. Meanwhile, the licensing process will be ongoing, and if individual institutions believe they are adequately prepared and wish to be considered as soon as possible, they should submit their applications to the HKMA by September 30, 2025. Institutions that did not receive licenses in the first phase but wish to continue applying will be maintained in appropriate communication with the HKMA.

Regarding the issuance requirements, the Monetary Authority stated that institutions obtaining a stablecoin issuer license must meet three requirements: compliance (risk control), specificity (application scenarios), and sustainability (financial status). In addition, the authority emphasized that it will not disclose the list of institutions that express interest or submit applications.

6. The three major note-issuing banks in Hong Kong are expected to be the first to be approved

According to reports from Securities China, from the perspective of application thresholds, the three major note-issuing banks in Hong Kong, namely Bank of China (Hong Kong), Standard Chartered Bank (Hong Kong), and HSBC, are most likely to be the first to apply and get approved. In addition, Chinese-funded banks, sandbox testing companies, large central state-owned enterprises, and internet giants with payment licenses are eager to try. The role of securities companies, in the initial stage, is more about providing services such as trading, custody, financing, and consulting for stablecoins, as well as offering digital asset allocation services related to the tokenization of traditional assets. Currently, 44 institutions, including securities firms, have upgraded their virtual asset trading licenses, compared to 3 new ones added at the end of June.

Conclusion

The effectiveness of the Hong Kong "Stablecoin Regulation" marks a critical step for Hong Kong in the digital finance sector. While the United States solidifies the supremacy of the US dollar stablecoin through legislation, Hong Kong is uniting the Asia-Pacific consensus with open regulation. Sovereign capitals such as Vanuatu have already entered Hong Kong with compliant stablecoins, anchoring the financial pivot of the "Belt and Road" initiative. With technical barriers and sovereign credit layered together, Hong Kong is nurturing the "Asia-Pacific version of Circle." The Monetary Authority is cautiously positioning itself, reserving space for innovation while adhering to risk bottom lines, making Hong Kong a key cradle in the reshaping of the global currency landscape. As stablecoin competition returns to the essence of risk control capabilities and ecological construction, the deep-seated value of Hong Kong as an Eastern financial fortress is just beginning to emerge.