Hong Kong once again "draws its sword" in the field of virtual asset regulation! On August 25, the Hong Kong Monetary Authority (HKMA) issued a circular confirming that starting January 1, 2026, it will fully implement new banking capital regulations based on the Basel Committee on Banking Supervision (BCBS) standards for crypto asset regulation in Hong Kong. This means that banks holding crypto assets will face extremely high capital requirements. This new regulation will not only profoundly impact banks' asset allocation and innovation paths but also clearly indicate what kind of stablecoins can truly enter the mainstream financial system, signaling that crypto assets will undergo a "big screening" led by regulation.
- Hong Kong's New Crypto Regulations: 2026 Banking Capital Standards to be Implemented Globally First
Basel Standards: The HKMA has confirmed that starting January 1, 2026, it will fully implement new banking capital regulations based on the Basel Committee on Banking Supervision (BCBS) standards for crypto asset regulation in Hong Kong. Hong Kong will become one of the first jurisdictions in the world to implement this standard within its local legal framework.
Broad Definition: The new regulations define crypto assets as "digital assets" that primarily rely on cryptography and distributed ledger technology or similar technologies. This broad definition encompasses Bitcoin, Ethereum, real-world assets (RWA), and stablecoins.
Removal of the term "private": Fei Si, a lecturer at the University of Hong Kong's Faculty of Law and a partner at King & Wood Mallesons, pointed out that the HKMA has removed the term "private" from the Basel standards, meaning that crypto assets issued by both the public and private sectors will fall under Hong Kong's regulatory scope.
- Classification of Crypto Assets: Determining Banks' "Access" and "Costs"
The Basel Committee classifies crypto assets into two main categories, which will profoundly affect banks' asset allocation and innovation paths.
First Group of Assets (Manageable Risk): Assets that are relatively manageable in risk and have strong compatibility with the traditional financial system, such as compliant stablecoins or RWAs. The capital requirements for these assets are similar to those for traditional financial instruments.
Second Group of Assets (High Risk): Assets that are highly volatile and difficult to hedge completely, including most cryptocurrencies like Bitcoin. These assets require "1:1" full capital coverage, meaning that for every unit of risk exposure a bank holds, it must match it with an equivalent amount of capital to guard against potential losses. The highest risk weight is set at 1250%, meaning banks must hold capital at least in a 1:1 ratio against these crypto asset risk exposures.
- What Kind of Stablecoins Can Enter the Mainstream Financial System?
The new regulations clearly state that only stablecoins that meet strict compliance, liquidity, and risk management requirements have the opportunity to be included in the first group of assets, thereby gaining favor from banks.
Compliant Stablecoins: Only those stablecoins fully backed by high-quality, low-risk assets (such as government bonds and central bank deposits) and that have transparency and redemption mechanisms are likely to enter the first group with relatively relaxed capital requirements.
Non-Compliant Stablecoins: Algorithmic stablecoins or those lacking sufficient reserves and transparency may be classified into the second group, requiring banks to allocate extremely high capital if they hold them, increasing the difficulty.
Polarization: The future of stablecoins may trend towards polarization: compliant stablecoins could become important tools for cross-border payments and financial settlements, while non-compliant stablecoins may gradually be marginalized by the mainstream financial system.
- Hong Kong's Regulatory Leadership: A Global Model and Challenge
Global First: Hong Kong will become one of the first jurisdictions in the world to implement the Basel crypto asset regulatory standards within its local legal framework. However, apart from Hong Kong, only a few other Basel Committee members have officially initiated preparations to implement the Basel crypto asset regulatory standards locally. Most Basel Committee members, including the United States, are not expected to implement the Basel crypto asset regulatory standards before January 2026.
Bank Preparation Work: Before the revised Hong Kong banking capital rules officially take effect, local banking institutions have much preparation to do. They must develop a comprehensive set of policies, procedures, and systems to fully document the supporting files and information used to determine whether their crypto assets meet the relevant classification criteria. The HKMA has the authority to require banks to submit crypto asset classification assessment reports and supporting files. If the HKMA disagrees with a bank's classification decision regarding crypto assets, it can overturn that bank's decision.
Opportunities and Challenges: For banks, this means facing higher capital constraints on high-risk crypto asset investments, while needing to invest more in compliance and risk management costs in emerging areas like stablecoins and RWAs. At the same time, this system establishes an internationally consistent regulatory foundation for Hong Kong's financial market, helping to maintain systemic stability while providing space for long-term healthy digital asset innovation.
Conclusion:
The Basel capital regulations for crypto assets that the HKMA is about to implement represent another milestone in Hong Kong's digital finance regulatory landscape. They clarify what kind of stablecoins can truly enter the mainstream financial system, signaling that crypto assets will undergo a "big screening" led by regulation. This new regulation will profoundly impact banks' asset allocation and innovation paths and push the stablecoin market towards polarization. Hong Kong is striving to find a balance between strict regulation and innovation to solidify its position as an international virtual asset center.
Related Reading: Hong Kong Stablecoins as Payment Tools, No Speculative Opportunities
Original Article: “Hong Kong's 2026 Banking Regulations: What Kind of Stablecoins Can Enter Mainstream Finance?”
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