Stablecoin Regulation in Hong Kong: The New Licensing Framework

Hong Kong has enacted one of the world's first comprehensive licensing regimes specifically designed for fiat-referenced stablecoin (FRS) issuers. The Stablecoins Ordinance, which received Legislative Council passage in 2025, establishes a mandatory licensing regime under the Hong Kong Monetary Authority (HKMA) for entities that issue stablecoins referencing the value of one or more fiat currencies. The Ordinance represents a significant step in Hong Kong's broader strategy to develop a regulated digital asset ecosystem, and it has attracted close attention from stablecoin issuers worldwide who are evaluating Hong Kong as a potential licensing jurisdiction.

This guide explains the key features of the Stablecoins Ordinance and what businesses involved in issuing, distributing, or facilitating the use of stablecoins need to know.

What Is a Fiat-Referenced Stablecoin?

A fiat-referenced stablecoin (FRS) is a cryptographically secured digital representation of value that is issued on a distributed ledger and that purports to maintain a stable value by referencing the value of one or more fiat currencies (such as the US dollar, the Hong Kong dollar, or the euro). Examples include USDC (referencing the US dollar), USDT (Tether, also US dollar-referenced), and potential HKD-referenced stablecoins that may emerge under the new regime.

The Ordinance does not cover all types of stablecoins. Algorithmic stablecoins (which maintain their peg through algorithm-controlled supply mechanisms rather than fiat reserves) are not FRS and are not within the licensing regime. Commodity-backed stablecoins (referencing gold, for example) are also outside the FRS definition. These distinctions are important because the legal treatment of non-FRS stablecoins under Hong Kong law remains governed by the existing SFO framework — where a stablecoin constitutes a "security" under the SFO, it is regulated as a security regardless of whether it falls under the Stablecoins Ordinance.

Who Needs a Licence?

The Stablecoins Ordinance establishes a licensing requirement for any person who issues an FRS in Hong Kong, or who issues an FRS outside Hong Kong and actively markets it to the Hong Kong public. "Issuance" includes creating FRS tokens and distributing them to users in exchange for fiat currency (or other consideration). Secondary market trading of FRS by persons other than the issuer is not directly regulated under the Ordinance (though trading of FRS on a VATP remains subject to the VASP licensing regime under the SFO).

Persons who are already licensed under the HKMA (such as authorized institutions — licensed banks and deposit-taking companies) may issue FRS under a modified or expedited process, but must still comply with the substantive requirements of the Ordinance. Non-bank FRS issuers require a standalone FRS issuer licence from the HKMA.

There is an important extraterritorial dimension: the Ordinance reaches overseas issuers who actively market their FRS to Hong Kong investors or users. Overseas FRS issuers that have not previously engaged with the Hong Kong market should review their distribution arrangements carefully to assess whether they fall within the regulatory perimeter.

The HKMA Licensing Process

Applications for an FRS issuer licence must be submitted to the HKMA. The HKMA will assess the applicant's fitness and properness, financial soundness, governance arrangements, and compliance capabilities. Key requirements include:

Incorporation in Hong Kong: Non-bank FRS issuers must be incorporated in Hong Kong (as a private company limited by shares under the Companies Ordinance) and must maintain a physical presence and management in Hong Kong. Overseas entities cannot apply directly but may establish a Hong Kong subsidiary for this purpose.

Fit and proper management: The HKMA expects the board and senior management of the applicant to be fit and proper, with appropriate expertise in financial services, risk management, and technology. At least a portion of the board must be independent of the issuer's major shareholders.

Minimum capital: The Ordinance prescribes a minimum paid-up capital requirement for licensed FRS issuers. The HKMA has the power to require higher capital where the risk profile of the issuer's business warrants it.

Reserve requirements: This is the most critical feature of the FRS regime. Licensed issuers must maintain a reserve of eligible assets at all times at least equal in value to the total outstanding value of FRS in circulation. Reserve assets must be held in the name of the issuer (or a nominated custodian) and segregated from the issuer's own proprietary assets. Eligible reserve assets are restricted to high-quality, highly liquid instruments: cash, central bank deposits, and short-duration government securities (or their equivalent). The HKMA has the power to specify eligible reserve assets by notice.

Redemption at par: Holders of licensed FRS tokens have a right to redeem their tokens at the issuer for the equivalent value in the referenced fiat currency (or at par), within the timeframes and procedures specified in the Ordinance and the issuer's terms. The redemption right is a fundamental investor protection feature of the regime and distinguishes licensed FRS from uncollateralised or algorithmically managed tokens.

Whitepaper disclosure: Licensed FRS issuers must publish a whitepaper containing mandated disclosure about the FRS, including: the technical specification of the token; the reserve composition and management policy; the redemption procedure; the governance and risk management arrangements; the regulatory status of the issuer; and material risks. The whitepaper must be kept up to date and the HKMA may require corrections or amendments.

Audit and reporting: Licensed issuers are subject to annual audit of their reserve assets and financial position, and must submit regular returns to the HKMA. The HKMA may conduct on-site inspections.

The HKMA Sandbox

Ahead of the Stablecoins Ordinance coming into full force, the HKMA operated a stablecoin issuer sandbox that allowed selected participants to test FRS issuance under supervised conditions without a full licence. Sandbox participants included JD Technology (a subsidiary of JD.com), RD InnoTech, and Standard Chartered / Animoca Brands / HKT consortium. The sandbox experience has informed the development of the Ordinance's detailed requirements and provides an indication of the HKMA's supervisory priorities.

Distribution and Use of Licensed FRS

The Stablecoins Ordinance primarily regulates issuers, not distributors. However, entities that distribute or facilitate the use of licensed FRS (for example, VATPs that list FRS for trading, payment service providers that accept FRS, or DeFi protocols that integrate FRS) must consider their obligations under their own licensing regimes. In particular:

• VATPs that list FRS for trading must comply with the SFC's VASP regime and ensure that listed FRS tokens are licensed under the Stablecoins Ordinance (unlicensed FRS will likely be ineligible for listing on a licensed VATP)
• Payment service providers that process FRS transactions may engage obligations under the Payment Systems and Stored Value Facilities Ordinance
• Banks and authorised institutions that accept FRS as payment or integrate FRS into their products must comply with HKMA requirements

Implications for Offshore Stablecoin Issuers

The most commercially significant question for established global stablecoin issuers — particularly those issuing US dollar-referenced stablecoins — is whether they need to obtain a Hong Kong FRS licence if their tokens are traded or used in Hong Kong. The Ordinance's active marketing provision creates extraterritorial reach, and large issuers whose tokens are widely traded on Hong Kong-licensed VATPs will need to assess whether their distribution activities constitute "active marketing" to the Hong Kong public.

Issuers who do not obtain a Hong Kong FRS licence but whose tokens are actively marketed or distributed in Hong Kong face the risk that their tokens will not be eligible for listing on licensed VATPs, which would significantly reduce access to the Hong Kong retail and institutional market.

HKD-Referenced Stablecoins: The Opportunity

One of the anticipated outcomes of the Stablecoins Ordinance is the emergence of licensed HKD-referenced stablecoins issued by banks or fintech entities. An HKD stablecoin could serve as a bridge between the traditional financial system and the tokenised asset ecosystem — enabling settlement of tokenised bonds, funds, and other assets using a Hong Kong dollar digital token. The HKMA has expressed public support for the development of HKD stablecoins as part of its broader digital currency infrastructure strategy (alongside Project Ensemble's wCBDC research).

Interaction with the VASP Regime

Licensed FRS issuers are not automatically licensed as VATPs under the SFO's VASP regime. If a licensed FRS issuer also operates an exchange or trading platform for its FRS tokens (beyond simple redemption and issuance), it may require a VATP licence from the SFC in addition to its HKMA FRS issuer licence. The interaction between the two regimes — HKMA-regulated issuance and SFC-regulated trading — is an area where careful legal structuring is required to ensure that all regulated activities are covered by the appropriate licence.

How Alan Wong LLP Can Help

Alan Wong LLP advises on the legal and regulatory aspects of the Stablecoins Ordinance and the broader virtual asset regulatory framework in Hong Kong. Our work includes: advising FRS issuers on licensing requirements and the HKMA licence application process; advising on reserve structure and custody arrangements; reviewing whitepapers and disclosure documents for compliance with the Ordinance; advising on the regulatory treatment of stablecoins under the SFO (including as securities or stored value facilities); and advising VATPs and payment service providers on their obligations in connection with listed or accepted stablecoins. We work with both established financial institutions entering the stablecoin market and fintech and blockchain companies building stablecoin-based payment and settlement solutions.