Author: Nancy, PANews

Hong Kong's stablecoin regulation is accelerating into a substantive phase.

With the "Stablecoin Ordinance" set to officially take effect on August 1, 2025, the Hong Kong Monetary Authority (HKMA) released a series of accompanying regulatory documents on July 29, including the "Guidelines for Licensed Stablecoin Issuers," "Guidelines for Combating Money Laundering and Terrorist Financing (Applicable to Licensed Stablecoin Issuers)," and "Summary of the Licensing System for Stablecoin Issuers," establishing a comprehensive regulatory framework covering application, operation, asset management, and anti-money laundering compliance.

These guidelines not only provide a clear application path and compliance standards for the stablecoin market but also demonstrate Hong Kong's commitment to strengthening risk prevention while leaving room for innovative development in stablecoins. This article will outline the key points of the relevant stablecoin guidelines and delve into the regulatory requirements and practical pathways.

First Batch of Stablecoin Licenses to be Announced Early Next Year; Companies That Fail to Apply Must Exit by November

"Licensing will be an ongoing process. If individual institutions believe they are adequately prepared and wish to be considered early, they should submit their applications to the HKMA by September 30," stated the HKMA.

Currently, the HKMA has not issued any licenses, and the first batch of licensed stablecoin issuers is expected to be announced as early as early 2026, focusing on cross-border trade and Web3 applications. The first phase will only issue a few licenses, with high entry thresholds, and priority will be given to applications submitted before September 30. The names of licensed stablecoin issuers will be published on the HKMA's website.

After the Hong Kong "Stablecoin Ordinance" takes effect on August 1, for existing fiat stablecoin issuers with meaningful and substantive operations in Hong Kong, the HKMA has set a six-month transition period (until January 31, 2026), including issuing temporary licenses to issuers capable of complying with regulatory requirements. During the first three months after the ordinance takes effect (by October 31, 2025), existing issuers wishing to apply for a license must submit their licensing applications and relevant supporting documents, including business plans and legal compliance statements, and appoint personnel to carry out designated activities. If the application is successfully submitted and confirmed by the HKMA, the issuer may continue to engage in regulated stablecoin activities until January 31, 2026.

If they fail to complete the application on time, are rejected, or withdraw their application, these issuers will enter a one-month winding-up period starting November 1, 2025, during which they must orderly exit their business and accept strict supervision from the HKMA, including asset custody and activity restrictions. Continuing or appearing to engage in regulated stablecoin activities after the winding-up period will violate the ordinance and be considered a crime. It is important to note that merely establishing a company in Hong Kong or conducting shell operations in Hong Kong is insufficient to be regarded as an existing stablecoin issuer.

Implementation of KYC Rules; Future Consideration for Higher Regulatory Thresholds

In terms of risk management, licensed stablecoin issuers may only delegate the issuance of fiat stablecoins to recognized service providers, and such issuance must be approved by the license. Recognized providers include licensed entities, institutions recognized under the Banking Ordinance, entities with payment licenses, approved virtual trading platforms compliant with the Anti-Money Laundering Ordinance, and licensed institutions approved by the Hong Kong Securities and Futures Commission.

At the same time, the HKMA clearly requires that custodial assets must be strictly segregated from the issuer's own assets, with regular disclosures of reserve asset management policies and audit results. Licensees must employ technical measures such as multi-signature, pre-mined coin mechanisms, secure private key management, smart contract security audits, and "what you see is what you sign" practices, and it is recommended to combine off-chain rehearsals for multiple verifications to enhance risk defense levels. Beyond technical and asset aspects, the guidelines also emphasize that stablecoin issuing institutions must have a clear board structure and a sound internal control system.

To create a safe and compliant environment for Hong Kong's stablecoin market, the HKMA has clarified anti-money laundering regulatory requirements in the "Guidelines for Combating Money Laundering and Terrorist Financing (Applicable to Licensed Stablecoin Issuers)," including risk assessment, customer due diligence, ongoing monitoring, compliance for stablecoin transfers, and suspicious transaction reporting. Among these, in ongoing monitoring, the HKMA requires licensed stablecoin issuers to take effective measures to identify and verify the identities of stablecoin holders. Customers must undergo a complete customer due diligence (CDD) process and regular reviews (such as name, date of birth, ID number, etc., retained for at least five years); non-customer holders generally do not need to verify their identities directly, but if monitoring reveals wallet addresses associated with illegal activities, sanction lists, or suspicious sources, and the licensee cannot demonstrate that its risk mitigation measures (such as blockchain analysis tools) are sufficient to prevent ML/TF risks, the licensee must further investigate and verify the identities of the relevant holders.

Concerns have been raised by industry insiders regarding the requirement for stablecoin holders to complete identity verification, arguing that it may limit the number and scale of stablecoin users.

It is worth mentioning that the HKMA has also stated that it will continue to explore establishing mutual recognition mechanisms with other jurisdictions, monitor international regulatory dynamics regarding systemic stablecoins, and consider setting higher regulatory thresholds as appropriate.

Requirement for Full Reserve Asset Support; Multi-Currency Stablecoins Allowed

Regarding the reserve asset support capability for stablecoins, the regulatory guidelines clearly state that all issued stablecoins (including frozen or blacklisted coins) must be fully backed by assets. Qualifying reserve assets include cash, bank deposits, marketable debt securities, and other high-quality, highly liquid, and low-risk assets recognized by the HKMA. The HKMA will implement a proportional regulatory principle, applying differentiated risk mitigation requirements based on the types and structures of reserve assets held by licensees, but custodians must be licensed banks in Hong Kong or financial institutions with equivalent qualifications.

Licensees may issue "designated stablecoins" pegged to different fiat currencies based on market demand, but new currencies must be approved by the HKMA. Licensees must also demonstrate their governance capabilities, technical capabilities, and resource support to avoid the spillover of multi-currency management risks. To enhance the flexibility and efficiency of reserve asset utilization, the HKMA adopts a technology-neutral principle, allowing licensees to hold qualifying assets as reserves in tokenized form, subject to obtaining written approval from the HKMA. In special circumstances, the HKMA allows licensees to apply for currency mismatches, but this requires case-by-case approval and a reasonable explanation.

Additionally, the HKMA requires licensees not to pay interest on their issued stablecoins and does not restrict the custody of reserve assets abroad. Licensees are allowed to delegate third-party investment managers for asset management, provided that they ensure the transparency, security, and liquidity of the assets and regularly disclose audited reserve reports to enhance market confidence.

In terms of issuance, redemption, and distribution, the guidelines require licensees to establish efficient, transparent, and user-friendly process mechanisms, mandating that redemption requests be processed within a reasonable time without setting unreasonable thresholds or fees. Although the "Stablecoin Ordinance" stipulates that redemption requests must be processed within one working day, this time requirement refers to the processing limit after the holder has completed the necessary conditions (such as identity verification, funding path confirmation, etc.), and the time for prior compliance review is not included in the processing time.

It is noteworthy that the HKMA does not mandate stablecoin issuers to establish market-making mechanisms, but if such arrangements are set up, they must prevent potential conflicts of interest and market manipulation risks.

To support the global development of Hong Kong's stablecoin market, the HKMA supports distribution through overseas channels, but issuers must establish a comprehensive compliance and risk control system. Furthermore, regarding situations where services are accessed via VPN, the regulation adheres to a risk-based principle and does not impose a blanket ban on technical means.

Applicants Must Maintain No Less Than $25 Million in Paid-in Capital and Establish a Local Office in Hong Kong

Any institution intending to engage in stablecoin issuance and related businesses must obtain approval from the HKMA. Applicants and licensees must continuously meet certain criteria to ensure the compliance, robustness, and investor protection of stablecoin issuance activities.

According to the requirements, applicants must be companies incorporated in Hong Kong or recognized institutions incorporated outside Hong Kong. Regardless of whether the applicant is a Hong Kong or overseas corporation, they must establish a substantive operational base in Hong Kong and clearly outline their Hong Kong operational arrangements in the application materials, including office location, resident personnel plans, and contact information.

At the same time, applying for a license must meet minimum criteria, including financial resources, risk management, information disclosure, and business activities. For example, applicants must have sufficient financial resources, maintaining no less than HKD 25 million in paid-in capital or equivalent recognized financial resources; applicants need to submit relevant documents, including business plans and financial budgets for the next three years, audited reports for the past three fiscal years, and anti-money laundering/anti-terrorist financing risk assessment reports; senior executives and key personnel of the applicant must have relevant knowledge and experience and be resident in Hong Kong to ensure effective management and supervision. The HKMA may conduct interviews with the applicant's directors, CEOs, etc.; the applicant must develop and implement comprehensive risk management policies and procedures.

From the public application process perspective, applicants should first engage in preliminary informal discussions with the HKMA to understand licensing requirements and shorten subsequent application processing times. As the applicant needs to submit complete documents, including application forms, three-year business plans and financial budgets, company articles, organizational charts, and risk management policies. If the applicant is approved, the HKMA will record the licensee's information and announce the effective date; conversely, a written notification will be sent to the applicant explaining the reasons. Of course, applicants cannot publicly claim to have obtained a license before their application is approved.

According to HKMA President Eddie Yue's disclosure on July 18, dozens of institutions have proactively contacted the HKMA team, some explicitly expressing their intention to apply for stablecoin licenses, while others are in preliminary exploratory stages. Additionally, Cobo's Chief Operating Officer Lily Z. King stated in an interview with Hong Kong 01 that the company is currently assisting about 50 to 60 potential clients in preparing applications for Hong Kong stablecoin licenses, half of which are payment institutions and the other half are well-known internet companies, most of which have Chinese backgrounds. However, it is expected that Hong Kong's first phase may only issue 3 to 4 licenses, with a total not exceeding 10.

As of now, several institutions have explicitly announced their applications for stablecoin licenses, including JD Coin Chain Technology, Ant International, Standard Chartered Bank (Hong Kong), and Yuan Coin Innovation Technology.

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