Stablecoin Regulation in Hong Kong: The 2024 Stablecoin Bill Explained

Background: Why Regulate Stablecoins?

Stablecoins — digital assets designed to maintain a stable value, typically pegged to a fiat currency such as the US dollar or Hong Kong dollar — have grown significantly in use as a medium of exchange and settlement instrument in digital asset markets. Their fiat-backed nature raises specific regulatory concerns around monetary policy, consumer protection, systemic risk, and AML/CFT compliance.

Hong Kong has moved to address these concerns through dedicated stablecoin legislation, consistent with its broader strategy of becoming a regulated digital asset hub in Asia.

The 2024 Stablecoin Bill

In December 2023, the Hong Kong Monetary Authority (HKMA) concluded its consultation on a proposed regulatory regime for fiat-referenced stablecoins (FRS). The Stablecoins Bill was introduced into the Legislative Council in 2024, proposing a licensing regime administered by the HKMA.

The regime covers issuers of FRS — stablecoins whose value is referenced to one or more fiat currencies. It does not directly regulate algo-stablecoins, commodity-backed tokens, or other types of digital assets (which may be regulated under the Securities and Futures Ordinance or other legislation depending on their characteristics).

Who Needs a Licence?

Under the proposed regime, any person who issues FRS:

• In Hong Kong; or
• In respect of Hong Kong dollars; or
• Actively marketed to the Hong Kong public

…must obtain a licence from the HKMA unless exempt. The extraterritorial element (HKD-referenced stablecoins issued offshore) is notable and reflects the HKMA's determination to maintain oversight of HKD-pegged instruments regardless of where issuance occurs.

Licensing Requirements

Licence applicants must demonstrate:

• Fit and proper: Management and controllers must meet fit-and-proper standards, including on financial soundness, competence, and integrity
• Hong Kong presence: Issuers must establish a meaningful presence in Hong Kong (at minimum, a locally incorporated entity)
• Reserve assets: The stablecoin must be fully backed by high-quality, liquid reserve assets denominated in or hedged to the reference currency
• Segregation: Reserve assets must be held separately from the issuer's own assets, in a manner that protects holders in the event of the issuer's insolvency
• Redemption rights: Holders must have a right to redeem stablecoins at par value in the reference currency, within a reasonable period
• Disclosure: Issuers must publish regular, audited reports on reserve composition

Reserve Management

The reserve management requirements are at the core of the proposed regime. Eligible reserve assets are expected to include cash, central bank deposits, and short-dated government securities. The HKMA has signalled that it will set detailed rules on eligible asset classes, concentration limits, and custody requirements.

The parallels with Hong Kong's existing Exchange Fund (which backs the HKD under the linked exchange rate system) are deliberate — the HKMA intends to apply similar rigour to FRS reserve management.

AML/CFT and Consumer Protection

Licensed issuers must implement AML/KYC procedures consistent with Hong Kong's AML/CFT requirements. They must also meet disclosure and complaint-handling standards designed to protect retail users.

Interaction with Other Regulatory Frameworks

The stablecoin regime sits alongside:

• The SFC's VASP licensing regime (for exchanges and dealing in virtual assets)
• The SFC's existing regulatory framework for tokenised securities
• The HKMA's regulatory framework for stored value facilities (SVF)

Issuers whose stablecoins are used in payment contexts (rather than purely as a settlement asset in crypto markets) may also engage with the Payment Systems and Stored Value Facilities Ordinance.

Implications for Market Participants

For stablecoin issuers already operating in Hong Kong or planning to target Hong Kong users, the Bill signals that a regulatory conversation with the HKMA is unavoidable. Early engagement — including sandbox participation — is advisable. For users and investors, the regime provides a framework for assessing the credibility of FRS issuers operating in the Hong Kong market.

How Alan Wong LLP Can Assist

Alan Wong LLP's digital assets practice advises stablecoin issuers, fintech companies, and financial institutions on navigating Hong Kong's evolving virtual asset regulatory landscape. We assist with regulatory analysis, licence applications, corporate structuring, reserve management frameworks, and AML/CFT compliance design. Our team has experience working with the HKMA and SFC on digital asset matters and can provide timely, practical advice as the stablecoin regulatory framework develops.