Hong Kong Gets Ready for Stablecoin Regulation: HKMA Prepares for Enactment of the Regime
Client Alert | June 4, 2025
This update examines key changes made to the Ordinance during the Hong Kong Legislative Council’s consideration of the Bill, flags a number of key observations made by the Hong Kong Government during the LegCo process, and outlines key aspects of the Consultation Papers.
On May 21, 2025, the Hong Kong Legislative Council (LegCo) passed the long-awaited Stablecoins Bill (Bill) to introduce a robust regulatory framework for fiat-referenced stablecoin issuers in Hong Kong, focusing on stablecoins that maintain their value by referencing official currencies (specified stablecoins).[1] While the Stablecoins Bill was gazetted as the Stablecoins Ordinance (Cap. 656) (Ordinance) on May 30, 2025,[2] the Ordinance has not yet come into effect and its commencement date is currently unknown. However, the Hong Kong Monetary Authority (HKMA) has indicated that it expects the regime to come into effect this year.
As part of the HKMA’s preparation for the commencement of the Ordinance, the HKMA published two consultation papers (Consultation Papers) on May 26, 2025.[3][4] In one of the consultation papers, titled “Consultation Draft Guideline on Supervision of Licensed Stablecoin Issuers”, the HKMA is seeking feedback on the proposed guidelines that set out its expectations regarding the minimum ongoing criteria that licensed stablecoin issuers must meet (Supervision Guideline). In a separate consultation paper, titled “Consultation Paper on the Proposed AML/CFT Requirements for Regulated Stablecoin Activities”, the HKMA is seeking views on its proposed anti-money laundering and counter-financing of terrorism (AML/CFT) requirements for stablecoin issuers seeking HKMA licensing to conduct regulated stablecoin activities (AML/CFT Consultation). The consultation period for both Consultation Papers is until June 30, 2025.
I. LegCo’s consideration of the Bill
In December 2024, the Government introduced the Bill to LegCo with the aim of establishing a regulatory regime for the supervision of activities involving stablecoins and providing the HKMA with relevant supervisory powers.[5] This followed the HKMA and Financial Services and Treasury Bureau’s consultation which concluded in July 2024 (see our previous client alert here).[6] LegCo’s dedicated Stablecoins Committee (Bills Committee) then debated the Bill at a number of meetings and sought clarifications from the Hong Kong Government on a range of topics related to the Bill prior to the Bill’s passage on May 21, 2025. As part of this process, the Bills Committee released two reports on May 9, 2025[7] and May 21, 2025[8] reporting on their deliberations (LegCo Reports).
The LegCo Reports provide valuable insight into the Hong Kong Government’s approach to the regulation of stablecoins, the guidance which can be expected from the HKMA in coming months and the amendments made to the Bill between its introduction in December 2024 and its passage in May 2025.
The key takeaways from the LegCo Reports are as follows:
- The HKMA will issue guidelines regarding whether a specified stablecoin is issued ‘in Hong Kong’: The Ordinance will, once enacted, require persons which carry on ‘regulated stablecoin activity’ in Hong Kong to be licensed. This concept of ‘regulated stablecoin activity’ will capture the issuance of a specified stablecoin in Hong Kong or a HKD-referenced stablecoin outside of Hong Kong in the course of business. The LegCo Reports note that the HKMA will issue guidelines on the factors it will consider in determining whether a specified stablecoin is issued ‘in Hong Kong’, but that the Hong Kong Government intends for the HKMA to take a holistic approach which considers all relevant factors, including but not limited to:
- the location of the issuer’s day-to-day management and operations;
- place of incorporation;
- where minting and burning occur;
- where management of reserve assets takes place; and
- the location of bank accounts used for processing cash flows related to minting and redemption.
- The HKMA will take a holistic approach in deciding whether an activity constitutes “active marketing”: Under the Ordinance, a person would be regarded as holding out as carrying on a regulated stablecoin activity or offering a specified stablecoin if the person actively markets, whether in Hong Kong or elsewhere, to the public (i.e. the public of Hong Kong, including a class of that public) that the person carries on, or purports to carry on, a regulated stablecoin activity or the offering of a specified stablecoin. The LegCo Reports again signal that the HKMA will issue guidelines on the factors it will consider in determining whether a person is actively marketing to the public, but note that the Hong Kong Government intends for the HKMA to take a holistic approach which considers all relevant factors, including but not limited to:
- the language used in marketing materials;
- whether the materials are targeted at a group of people that resides in Hong Kong;
- whether a Hong Kong domain name is used for a marketing website; and
- whether there is a detailed marketing plan to promote the activity.
- SVF licensees will be permitted to offer specified stablecoins to the Hong Kong public: The Bill had initially proposed only allowing four categories of firm to offer specified stablecoins to the Hong Kong public, namely licensed stablecoin issuers, firms licensed by the Securities and Futures Commission (SFC) to conduct Type 1 regulated activity, SFC-licensed Virtual Asset Trading Platforms and HKMA-regulated authorised institutions. However, one of the most significant amendments made to the Bill during the LegCo review process was to expand the definition of ‘permitted offeror’ to also include firms regulated by the HKMA as stored value facility (SVF) licensees under the Payment Systems and Stored Value Facilities Ordinance (Cap. 584) (PSSVFO). The LegCo Reports note that this amendment was made on the basis of LegCo feedback and the Government’s consideration of stablecoin use cases and market trends, and that SVF licensees will be required to obtain prior and express approval from the HKMA before they commence offering specified stablecoins.
- Restrictions on offering specified stablecoins issued by an entity that is not licensed by the HKMA to professional investors only: Importantly, the LegCo Reports also make it clear that the legislative intent of the Ordinance is to limit the offering of specified stablecoins issued by an entity that is not licensed by the HKMA to professional investors only, and flag that this restriction will be implemented through the publication of a notice in the Gazette by the Financial Secretary pursuant to section 9(3) of the Ordinance. Further, the HKMA and the SFC will also issue a circular directing permitted offerors (as set out above) to clearly indicate where specified stablecoins may only be offered to professional investors.
II. The Supervision Guideline
In order to obtain and maintain a licence under the Ordinance, stablecoin issuers will be required to meet a range of minimum criteria (as set out in Schedule 2 of the Ordinance) in relation to key areas of their business operations and risk and compliance functions. The Supervision Guideline being consulted on by the HKMA provides guidance on the HKMA’s expectations with regard to these minimum criteria and is summarised in the below table. The HKMA has indicated that it welcomes feedback from the industry on the Supervision Guideline, but has not identified specific questions or areas where it considers industry feedback would be most helpful.
| Area | Key Requirements / Expectations | Details |
| Reserve Asset Management | Full Reserve Backing and Over-Collateralisation | Licensees must ensure that reserve assets are maintained at a level at least equal to the par value of all outstanding specified stablecoins in circulation.An additional layer of over-collateralisation is required to mitigate potential market risks and provide enhanced protection for holders.Licensees are required to conduct regular reconciliation of reserve assets to ensure ongoing compliance with the minimum reserve and over-collateralisation requirements. The valuation of reserve assets must be performed using transparent and robust methodologies, ensuring that the adequacy of the backing is consistently verified. |
| Quality and Composition of Reserve Assets | Licensees must hold reserve assets that are high quality, highly liquid, and carry minimal investment risk to ensure stablecoin reliability.Acceptable reserves include short-term bank deposits (up to three months), high-grade debt securities, overnight reverse repos, and investment funds holding only eligible assets.
Reserves should generally match the stablecoin’s currency (unless otherwise approved by the HKMA), but for Hong Kong dollar-referenced stablecoins, U.S. dollar reserves are allowed due to the linked exchange rate system between the HKD and USD. |
|
| Segregation and Safeguarding of Reserve Assets | Licensees must maintain reserve assets for each specified stablecoin in separate pools, distinct from other reserve assets and all other assets or funds held by the licensee. This segregation ensures that reserve assets are protected and not subject to claims from the licensee’s other creditors.Effective trust arrangements are required to ensure that reserve assets are held exclusively for the benefit of stablecoin holders and are always available to meet valid redemption requests at par value.
Any income or loss from the management of reserve assets accrues to the licensee. |
|
| Prohibition on Interest | Licensees are prohibited from paying interest or providing interest-like incentives to stablecoin holders. | |
| Transparency Requirements | To ensure transparency and maintain public confidence, licensees must publicly disclose their reserve asset management policy, the composition and value of their reserve assets, and the results of regular independent attestations and audits. Daily statements must be prepared and ready for submission to the HKMA if required, although licensees will generally only be required to report to the HKMA on a weekly basis.Licensees must report to the HKMA immediately on identification of a breach of statutory or regulatory requirements in relation to reserve assets management, material non-compliance with reserve assets management policy, and unresolved discrepancies identified in any reconciliation exercise. | |
| Issuance, Redemption and Distribution | Prudent Issuance and Full Reserve Matching | Licensees are required to issue stablecoins in a prudent manner, ensuring that new coins are only minted upon receipt of matching funds in the referenced currency.The value of reserve assets must fully correspond to the value of outstanding stablecoins at all times. |
| Redemption Rights | Stablecoin holders must have the right to redeem their stablecoins at par value, with a direct claim against the licensee for any shortfall, including in the event of insolvency.Redemption requests should be processed promptly, typically within one business day, and any associated fees must be reasonable and transparent.
A licensee should establish and maintain an effective redemption mechanism for the stablecoins it issues. |
|
| Distribution Requirements | A licensee should consider the licensing status of any third party entities involved in distributing its specified stablecoins. Where third party entities offer specified stablecoins in Hong Kong, the licensee should ensure that the third party entities are permitted offerors.Where engaging third party entities to provide liquidity on the secondary market for specified stablecoins issued by a licensee, the licensee should consider the need to engage such parties, and if so, the extent and scope of the arrangements, taking into account its business model and operational arrangement. The licensee should ensure that any such arrangements have the goal of maintaining relatively stable value for the specified stablecoins in the secondary markets, and that any potential and/or actual conflicts of interest have been identified as well as properly addressed and mitigated. | |
| Customer Due Diligence and Jurisdictional Controls | A licensee should establish adequate and effective policies and procedures for customer on-boarding in respect of issuance and redemption of specified stablecoins.A licensee should comply with the relevant laws and regulations in the jurisdictions where it offers specified stablecoins. Importantly, effective controls should be in place to detect and block attempts at location spoofing. | |
| Disclosure, Audit, and Reporting Requirements | Licensees must provide clear and comprehensive disclosures to the public regarding redemption processes, rights, and applicable fees.Regular audits of stablecoin operations are required to ensure compliance with its issuance, redemption and distribution policies, as well as the applicable regulatory requirements. | |
| Other Business Activities | Prudent Conduct of Stablecoin Activities | Licensees are required to issue specified stablecoins in a prudent and sound manner, taking into account their business model and operational arrangements. |
| Approval for Other Business Activities | Prior to engaging in any business activities outside of their licensed stablecoin operations, licensees must obtain prior consent from the HKMA. In seeking such approval, licensees should establish appropriate governance structures, conduct thorough risk assessments, and implement effective risk management measures.It is essential that these additional activities do not compromise the safety and soundness of the licensee’s stablecoin business or give rise to potential or actual conflicts of interest.
Licensees must also ensure that sufficient resources remain dedicated to their stablecoin activities at all times. Licensees are responsible for determining whether their other business activities are subject to regulation and must ensure full compliance with all applicable regulatory regimes. |
|
| Issuing Multiple Stablecoins | Licensees may issue more than one type of specified stablecoin, but must first consult with the HKMA before doing so. Licensees are expected to demonstrate that they possess adequate resources and operational capabilities to manage multiple stablecoin issuances without adversely affecting their existing operations. | |
| Financial Resources | Minimum paid-up share capital | Licensees must have a minimum paid-up share capital of HK$25,000,000, or an equivalent amount in another currency that is freely convertible into Hong Kong dollars, unless the HKMA grants an exemption or alternative arrangement.The HKMA retains the discretion to impose additional financial resource requirements or set higher capital thresholds as a condition of granting or maintaining a licence.
The financial resources allocated to meet these requirements should only be used for the purposes of the licensee’s business activities and should not be used for any dealing with its related companies or parties. |
| Risk Management | Governance and Oversight | A licensee engaged in stablecoin activities should implement robust risk management policies and procedures tailored to their size and complexity.This includes a clear governance structure with defined roles for the Board and senior management, documented risk management frameworks, regular reviews, independent audits, and timely risk reporting to both management and the HKMA. |
| Financial, Technology, and Security Controls | Licensees should prudently manage reserve assets to meet all redemption requests, even under stress. This involves setting internal limits, conducting stress tests, and managing credit, liquidity, and market risks.Technology and security risks must be addressed through comprehensive IT controls, smart contract management, wallet and account security, cybersecurity, oversight of third-party providers, ongoing monitoring, and independent audits. | |
| Token Management | For each specified stablecoin it issues, the licensee should clearly document (i) the token standards used, (ii) the distributed ledgers on which such specified stablecoins are issued, and (iii) the architecture of all smart contracts (including token contract, proxy contract, multi-signature contracts, etc.) in respect of such specified stablecoins.A licensee should identify all operations in relation to the management of the full lifecycle of each specified stablecoin it issues, which should cover deploy, configure, mint, burn, upgrade, pause, resume, blacklist, remove blacklist, freeze, remove freeze, whitelist, usage of any operational wallets, etc.
The licensee should also engage a qualified third party entity to audit the smart contracts in respect of such specified stablecoins on at least an annual basis in order to ensure the smart contracts, to ensure that the smart contracts (i) are implemented correctly, (ii) consistent with the intended functionalities, and (iii) are, to a high level of confidence, not subject to any vulnerabilities or security flaws. |
|
| Wallet and Private Key Management | A licensee should put in place effective wallet and private key management policies and procedures to ensure the security and integrity of the operations in relation to the specified stablecoins it issues.A licensee should put in place robust controls and procedures for private key management covering its full lifecycle, including but not limited to key generation, distribution, storage, usage, back-up, recovery, destruction, etc. The licensee should identify all seeds and/or private keys relevant to the management of the specified stablecoins it issues, and adopt measures which comply with detailed requirements set out in the Supervision Guideline but on a ‘scale proportionate’ to the significance of the seeds and private keys. In particular, the HKMA has noted that it expects seeds and private keys should be safeguarded in secure storage media, such as HSM with appropriate certification, in a secure facility with stringent access control and monitoring systems located in Hong Kong, or at a location acceptable to the HKMA. | |
| Account Management | During the customer on-boarding process, a licensee should adopt an effective authentication method to establish and verify the identity of a potential customer having regard to the nature of the customer (i.e. natural or non-natural person).When fulfilling a customer’s request for issuance or redemption, a licensee should transfer funds only to and accept fund transfers from the customer’s pre-registered accounts, as well as transfer specified stablecoins only to and accept transfers of specified stablecoins from the customer’s pre-registered wallet addresses or accounts.
A licensee should also establish effective monitoring mechanisms to prevent, detect and block unauthorised access to customers’ accounts and fraudulent transactions in relation to customers’ accounts. |
|
| Operational Risks / Incident Management | Comprehensive incident management, business continuity, and exit plans must be established, regularly tested, and approved by the board of the licensee. The HKMA must be promptly notified of any significant incidents or changes that could affect stablecoin redemption. | |
| Corporate Governance | Licensees must establish effective governance structures which correspond to the scale and complexity of their stablecoin operations.Controllers of licensees, chief executives, directors, and stablecoin managers (where the licensee is an authorized institution) should be fit and proper to hold their roles and must be approved by the HKMA. Officers who are responsible for the day-to-day management and operation of the licensee’s licensed stablecoin activities must also possess appropriate knowledge and experience to discharge their responsibilities.
Any changes in managerial appointments or responsibilities must be promptly reported to the HKMA. All managers must be assessed for suitability, with clear processes for selection, training, and addressing breaches. |
|
| Business Practices and Conduct | Licensees shall maintain robust information and accounting systems that accurately record business activities, ensure compliance with Hong Kong’s regulatory and accounting standards, and remain accessible for regulatory review. They should also keep accurate records and submit annual audited financial statements to the HKMA.Licensees must publish a white paper in respect of each type of specified stablecoin it uses. This white paper should be published on the licensee’s website and material changes to the paper should be notified to the HKMA before being made. |
III. The AML/CFT Consultation
As noted above, the HKMA is also seeking industry feedback on its AML/CFT Consultation, which sets out a range of AML/CFT requirements which the HKMA proposes imposing on stablecoin issuers. The HKMA has signalled that it has taken a range of factors into consideration in formulating the proposed AML/CFT requirements, including the following:
- Potential risks associated with stablecoin activities: The AML/CFT Consultation observes that stablecoins, like other virtual assets, present significant ML/TF risks due to the inherent anonymity, global accessibility, and the potential for complex fund layering associated with stablecoin transactions. The HKMA considers that these risks are further heightened when stablecoins are used in conjunction with unhosted wallets, which facilitate peer-to-peer transfers without the involvement of regulated intermediaries or the creation of blockchain records. However, the HKMA also recognises the traceability advantages offered by blockchain technology, which provides transparent and immutable records of all on-chain transactions, and considers that this transparency can assist in the identification of suspicious activities, even when obfuscation tools are employed.
- Alignment with international standards: International AML/CFT standards generally place obligations on intermediaries between individuals and the financial system. While the minting and burning of stablecoins by an issuer is not considered to be intermediating activity, stablecoin issuers will be considered intermediaries when they offer, redeem, or facilitate stablecoin transactions. Consequently, the HKMA proposes to treat stablecoin issuers as financial institutions under the Anti-Money Laundering and Counter-Terrorism Financing Ordinance (Cap. 615) (AMLO).
In light of these considerations, the HKMA intends to require licensed issuers to adopt a range of AML/CFT policies and controls to manage ML/TF risks associated with their stablecoin operations. At a minimum, these should include institutional risk assessments, governance and oversight, controls against terrorist financing and sanctions, suspicious transaction reporting, and record-keeping. Each of these requirements should be proportionate to the nature and scope of the licensee’s activities.
The table below summarises the specific AML/CFT requirements proposed for licensed stablecoin issuers, as well as the specific questions the HKMA is seeking feedback on:
| Regulatory Area | Key Requirements / Expectations | Details |
| Stablecoin Issuance and Redemption | The HKMA is seeking industry feedback on the following aspects of its proposals with regards to issuance and redemption:
|
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| Customer Due Diligence and Rights | For both the issuance and redemption of stablecoins, licensees must conduct due diligence on all customers. This includes individuals and legal entities with ongoing business relationships, as well as those conducting occasional transactions of HK$8,000 or more.In the case of redemption, licensees are also required to honor valid redemption requests from stablecoin holders. | |
| Wallet Identification and Ownership Verification | Before issuance or redemption of stablecoins, licensees must identify the relevant wallet address and verify the customer’s ownership or control of that wallet.If the wallet is custodial (e.g., provided by a VASP), the licensee must identify the institution providing the custodial wallet and perform due diligence on it. | |
| Additional Controls for Unhosted Wallets | The HKMA considers that unhosted wallets (i.e. those controlled directly by users rather than institutions) present heightened risks in both issuance and redemption situations.To mitigate these risks, licensees must implement additional controls before transferring stablecoins to, or accepting stablecoins from, unhosted wallets. These controls shall include:
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| Ongoing Monitoring | The HKMA is seeking industry feedback on the following aspects of its proposals with regards to ongoing monitoring:
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| Risk-based transaction monitoring systems | Given the ML/TF risks associated with stablecoins, and the fact that they have an identifiable legal issuer, licensees are required to implement effective, risk-based transaction monitoring systemsThese systems should:
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| Screen stablecoin transactions and wallet addresses | Licensees shall establish systems and controls to screen stablecoin transactions and associated wallet addresses. This includes the use of blockchain analytics tools to:
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| Stablecoin Transfers | The HKMA is seeking industry feedback on the following aspects of its proposals with regards to stablecoin transfers:
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| Section 13A of Schedule 2 of the AMLO applies the Travel Rule to VA transfers. The HKMA has proposed extending these requirements to stablecoin transfers on the basis that stablecoins are a type of VA as defined under the AMLO. | ||
| Additional measures for ongoing monitoring of stablecoins circulated in secondary markets | The HKMA is seeking industry feedback on the following aspects of its proposals with regards to additional monitoring in the secondary markets:
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Licensees should adopt proportionate and ongoing monitoring practices to mitigate the risk of stablecoins being used for illicit purposes. These may include:
The HKMA expects license applicants to consider international standards and available technological solutions when designing safeguards in this space. The HKMA has indicated that it is open to industry proposals, provided they align with the overarching principle of preventing misuse of stablecoins in secondary markets. |
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The HKMA has also noted that it is also developing supplementary AML/CFT guidance for digital asset activities, such as stablecoin issuance and custodial services. This aims to align with SFC guidelines to ensure consistent regulation across institutions performing similar activities. Industry consultation is planned for later in 2025.
IV. Conclusion
The passage of the Ordinance and release of the Consultation Papers are key milestones in the development of Hong Kong’s regulatory landscape for stablecoin issuers and offerors. Stakeholders are encouraged to review the Consultation Papers and submit feedback by June 30, 2025. In the meantime, we recommend stablecoin issuers to evaluate their current operations to ensure readiness for the forthcoming regulatory changes.
[1] “Government welcomes passage of Stablecoins Bill”, published by the Hong Kong Government on May 21, 2025, available here.
[2] Stablecoins Ordinance (Cap. 656) in gazette, available here.
[3] “Consultation Draft Guideline on Supervision of Licensed Stablecoin Issuers”, published by the HKMA on May 26, 2025, available here.
[4] “Consultation Paper on the Proposed AML/CFT Requirements for Regulated Stablecoin Activities”, published by the HKMA on May 26, 2025, available here.
[5] Stablecoins Bill, available at https://www.legco.gov.hk/yr2024/english/bills/b202412064.pdf
[6] “Hong Kong’s Regulators Publish Consultation Conclusions on Legal Framework for Stablecoin Issuers”, published by Gibson, Dunn & Crutcher on September 10, 2024, available at: https://www.gibsondunn.com/hong-kongs-regulators-publish-consultation-conclusions-on-legal-framework-for-stablecoin-issuers/
[7] “Paper for the House Committee – Report of the Bills Committee on Stablecoins Bill”,published by the Hong Kong Legislative Council on May 9, 2025, available here.
[8] “Report of the Bills Committee on Stablecoins Bill”, published by the Hong Kong Legislative Council on May 15, 2025, available here.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. If you wish to discuss any of the matters set out above, please contact any member of Gibson Dunn’s Financial Regulatory team, including the following members in Hong Kong:
William R. Hallatt (+852 2214 3836, whallatt@gibsondunn.com)
Emily Rumble (+852 2214 3839, erumble@gibsondunn.com)
Arnold Pun (+852 2214 3838, apun@gibsondunn.com)
Becky Chung (+852 2214 3837, bchung@gibsondunn.com)
Jane Lu (+852 2214 3735, jlu@gibsondunn.com)
*Macy Chung is a trainee solicitor in the firm’s Hong Kong office who is not yet admitted to practice law.
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