Exploration: Could the recent Stablecoins Legislation potentially establish Hong Kong as the prime virtual asset center in Asia?
Hong Kong is set to become the first major international financial center to implement comprehensive stablecoin legislation with the implementation of the Stablecoins Ordinance, effective August 1, 2025.
Under this new regulation, fiat-referenced stablecoin issuers must obtain a license from the Hong Kong Monetary Authority (HKMA) to operate legally. Key requirements include licensing, capital maintenance, compliance systems, scope, and penalties for non-compliance.
To obtain a license, only Hong Kong-incorporated companies or authorized overseas institutions with a principal place of business in Hong Kong can apply. License applicants must hold a paid-up share capital of at least HKD 25 million (approximately US$3.18 million).
Issuers must establish adequate and appropriate control systems for anti-money laundering (AML) and combating terrorist financing (CFT). The ordinance regulates specified stablecoins that maintain stable value wholly referenced to one or more official currencies or other units or digital representations specified by the HKMA.
Operating without a license can incur a maximum fine of HKD 5 million (around US$637,000) and imprisonment of up to seven years, plus daily fines for continued offenses. All stablecoin transfers must comply with the Travel Rule regardless of amount, adding to the compliance burden for issuers.
The new ordinance is generating significant market interest, with financial giants like Ant Group and Standard Chartered Bank reportedly seeking licenses. However, it may inadvertently exclude entrepreneurial innovators who have traditionally been the driving force behind fintech advancement.
The Stablecoins Ordinance provides clear redemption rights and legal protections that have been absent from existing major stablecoins. Each stablecoin must be fully backed by high-quality, highly liquid reserve assets in the same fiat currency. In insolvency situations, stablecoin holders can direct the reserve pool's disposal and claim any shortfall.
The global stablecoin market is currently dominated by USDT and USDC, which together represent approximately 85 percent of stablecoin market capitalisation worldwide. The framework's robust legal foundations are particularly important for institutional adoption, a key concern for industry experts like Hwang.
Hwang remains optimistic about Hong Kong's digital asset future, but sees the need for greater institutional acceptance and adoption of virtual assets for Hong Kong to become a global leader in virtual financial assets/digital currency. He expects the Stablecoins Ordinance to not be the last word in Hong Kong's legislative development of the Web3 market, with the anticipated VAOTC regime addressing concerns and allowing more latitude for transactions in cryptocurrencies.
The anticipated VAOTC regime is highly anticipated by the general market and could fix concerns related to the Stablecoins Ordinance, allowing more latitude for transactions in cryptocurrencies (including stablecoins) between institutions or professional investors. Hwang sees tokenisation of traditional financial assets and digitalisation of national currencies, including the RMB, as key development areas for Hong Kong's digital asset future.
The Stablecoins Ordinance, passed in May 2023, will take effect in August. The ordinance aims to create a stringent regulatory framework aligned with financial stability while encouraging innovation in the digital asset sector.
In line with the Stablecoins Ordinance, business entities wishing to issue fiat-referenced stablecoins must comply with the law by obtaining a license from the Hong Kong Monetary Authority (HKMA), ensuring adherence to capital maintenance, compliance systems, and regulations against money laundering and terrorist financing.
Financial institutions like Ant Group and Standard Chartered Bank are reportedly seeking licenses to comply with the new Stablecoins Ordinance, demonstrating significant market interest in this comprehensive regulatory framework for technology-based financial assets.
