Introduction
In July 2024, the Hong Kong Monetary Authority (HKMA) and the Financial Services and the Treasury Bureau (FSTB) released the Consultation Conclusions Report on the Legislative Proposal to Implement the Regulatory Regime for Stablecoin Issuers in Hong Kong. This marks a pivotal step toward establishing a formal licensing framework for stablecoin issuers, expected to take effect in 2025. Below, we break down the key aspects of this regulatory regime.
Key Highlights of the Licensing System
- Licensing Guidance: HKMA will evaluate applicants' business plans and stablecoin use cases.
- Regulatory Flexibility: Ongoing studies will address areas like private key storage, AML/CFT compliance, and wallet services.
- Tokenized Reserves: HKMA now explicitly accepts tokenized high-liquidity assets as reserve holdings.
- Interest Payment Ban: Clarifies distinctions between prohibited interest payments and permitted promotional incentives.
Regulatory Scope
1. Types of Regulated Stablecoins
(1) Blockchain Eligibility
- Applies only to stablecoins issued on decentralized distributed ledgers (e.g., public blockchains).
- Excludes private/consortium chains.
(2) Fiat-Referenced Stablecoins
- Prioritizes oversight of stablecoins pegged to single or multiple fiat currencies.
- Multi-currency pegs require enhanced risk management proofs.
2. Regulated Activities
Without HKMA licensing, entities cannot:
- Issue or advertise issuance of fiat-referenced stablecoins in Hong Kong.
- Issue港元-pegged stablecoins (even offshore).
- Actively promote stablecoin offerings to Hong Kong residents.
Key Clarifications:
- "Issuance": Context-dependent; HKMA will provide further guidance.
- "Active Promotion": Factors include language, target audience, and domain (.hk).
Reserve Asset Requirements
| Requirement | Details |
|---|---|
| Full Backing | 100% reserves mandatory; over-collateralization encouraged. |
| Eligible Assets | Cash, bank deposits, sovereign securities, tokenized versions. |
| Currency Matching | Reserves must match stablecoin’s currency (exceptions require approval). |
| Custody | Prefers Hong Kong-licensed banks; allows offshore custodians with proof. |
👉 Explore compliant reserve strategies
Operational Requirements
- Redemption Timeline: Must process within 1 business day (exceptions require pre-approval).
- Business Restrictions: No lending or financial intermediation.
- Local Presence: Issuers must be Hong Kong-incorporated with local management.
- Capital Requirements: Minimum paid-up capital of HKD 25M or 1% of stablecoin circulation (whichever is higher).
Compliance & Disclosure
- Monthly Audits: Independent audits for reserve assets.
- AML/CFT: Follows FATF standards; separate guidelines forthcoming.
- White Papers: Must detail redemption mechanisms, user rights, and fees.
FAQs
Q: Can offshore issuers sell stablecoins in Hong Kong?
A: Not to retail investors unless under formal regulatory cooperation (e.g., mutual recognition).
Q: Are promotional discounts allowed?
A: Yes, provided they don’t constitute interest payments.
Q: What’s the penalty for unlicensed issuance?
A: Criminal liability; fines and operational bans apply.
👉 Learn about HKMA’s sandbox for startups
Conclusion
Hong Kong’s progressive stance on stablecoins aims to balance innovation with financial stability. As the 2025 implementation nears, issuers should prepare by:
- Drafting detailed business plans.
- Ensuring reserve adequacy.
- Engaging with HKMA’s sandbox for early compliance testing.
For tailored advice on licensing applications or regulatory compliance, consult our fintech legal experts.
### Keyword Integration (Naturally Distributed):
- **Stablecoin issuer license**
- **HKMA regulatory framework**
- **Fiat-backed stablecoins**
- **Tokenized reserves**
- **AML/CFT compliance**
- **Redemption requirements**
- **Hong Kong crypto regulations**