Interpretation of Hong Kong Stablecoin Ordinance: Market Impact, Industry Opportunities and Challenges

The Stablecoin Ordinance (hereinafter referred to as the Ordinance), officially promulgated by the Hong Kong Special Administrative Region Government in May 2025, marks that Hong Kong has become the world's first major financial center to implement comprehensive statutory supervision of stablecoins. This systematic legal framework not only reshapes local market rules, but also has a far-reaching impact on the global digital asset (called virtual assets in Hong Kong, China before June 26, 2025) landscape. This article combines the specific provisions of the Ordinance to deeply analyze its market impact, industry opportunities and potential challenges.

I. Analysis of the core regulatory framework

The Regulations have established a three-in-one regulatory system of "issuance access + activity supervision + entity designation":

(I) Definition and Scope (Articles 3-7)

Stablecoin leaf="">：It is clearly defined as a digital value protected by encryption, which must meet four major characteristics: serving as a medium of exchange, being electronically transferable, being based on distributed ledger technology, and having its value anchored to a single or basket of assets (Article 3).

Specified stablecoins：Specify stablecoins whose value is fully or partially anchored to a fiat currency (such as the Hong Kong dollar), a specific unit of account, or a form of economic value storage (Article 4). This definition includes mainstream fiat stablecoins (such as USDT and USDC) within the core regulatory scope.

Regulated activities：It covers the issuance of stablecoins in Hong Kong, stablecoins issued overseas but anchored to the Hong Kong dollar, and other related activities specified by the HKMA (Article 5). Exchanges that provide stablecoin trading services must comply with strict "offer to provide" regulations (Articles 6 and 9).

(II) Licensing System (Articles 14-21)

Mandatory Licensing: Any institution conducting "regulated stablecoin activities" in Hong Kong must be licensed (Article 8). Violators may be fined up to HK$5 million and imprisoned for 7 years.

Dual Application Entities: Only companies registered in Hong Kong or authorized institutions established overseas (such as licensed banks) can apply (Article 14).

Dynamic supervision: The license is subject to variable conditions (Article 17). The HKMA may impose new conditions at any time (such as increasing capital requirements and limiting the size of issuance). The licensee must continue to meet the "minimum standards" (Schedule 2).

(III) Governance requirements for licensees (Articles 36-75)

Review of controllers: Pre-approval is implemented for major shareholders (holding >50% of the shares) and minority shareholders (holding 10%-50% of the shares). The HKMA may object to "unsuitable" controllers (Articles 37-42).

Appointment of key personnel: The CEO and stablecoin manager must reside in Hong Kong and be approved by the HKMA (Articles 53 and 66), and directors must pass the "fit and proper person" test (Article 58).

Segregation of reserve assets: Licensees are explicitly required to independently hold and strictly manage reserve assets (Article 17(2)(b)), and to give priority to protecting the interests of holders in the event of liquidation (Article 98). (IV) Cross-border supervision (Articles 100-107) : The HKMA may designate stablecoin issuers that operate outside Hong Kong but have a significant impact on Hong Kong as “designated stablecoin entities” and impose information disclosure and other requirements (Article 101), thereby reserving an interface for global coordinated supervision.

II. Far-reaching impact on market participants

(I) Stablecoin issuers: compliance costs soar, market reshuffle

License barriers: New issuers must meet requirements such as capital (Schedule 2), corporate structure, and reserve management. The estimated compliance costs are over HK$10 million. If existing issuers fail to meet the requirements within the transition period (Article 175), they may be forced to exit the Hong Kong market (Article 28).

Pressure on reserve management: The regulations require that reserve assets be “available at any time to meet redemptions” (Article 2(1)) and be subject to audit by the HKMA (Article 111), placing extremely high demands on the issuer’s liquidity and asset management capabilities.

Risk of market concentration: Traditional financial institutions (such as licensed banks) can more easily obtain licenses based on their existing compliance foundation (Article 13 exemption clause), which may lead to the stablecoin market tilting towards traditional financial giants.

(II) Exchanges and wallet service providers: business model reconstruction

“Approved provider” privileges: Only licensed exchanges (such as SFC VASP license holders) and approved financial institutions can provide stablecoin trading services to the public (Article 9(5)). If an unlicensed platform displays a stablecoin trading interface, it may constitute a criminal act of “displaying that it is offering to provide” (Article 9(3)).

Advertising compliance risks: Promoting stablecoin services for unlicensed issuers may result in a maximum sentence of 6 months in prison (Article 10), forcing platforms to strictly review listed assets.

(III) Traditional financial institutions: new track opportunities

Banks’ advantages are highlighted: Authorized institutions (banks) enjoy privileges in applying for licenses and cross-border service exemptions (Article 13), and can quickly launch stablecoin-related products.

Custody business expansion: The regulations require independent custody of reserve assets (Article 17), giving rise to new institutional-level custody service needs.

Payment innovation is accelerated: Banks can integrate stablecoin payment systems (defined in Article 2(1)) to improve cross-border settlement efficiency.

III. Industry Opportunities: Hong Kong’s Global Ambitions

(I) Attracting Global Institutions

Clear Licensing Path: The HKMA must approve applications from controllers (Article 38) and license applications (Article 15) within three months. Procedural transparency reduces policy uncertainty.

Legal Certainty Advantage: Compared with the fragmented regulation in the United States and Europe, Hong Kong’s single license covers the entire chain of issuance, reserve and redemption, providing institutions with a “regulatory sandbox”-style safety zone.

(II) Promote the upgrading of financial infrastructure

Stablecoin payment system: Encourage the development of compliant stablecoin clearing networks (defined in Article 2(1)), which may challenge traditional systems such as SWIFT.

Cross-chain interoperability requirements: The compliant application of distributed ledger technology (Article 3) will stimulate the development of technologies such as cross-chain bridges and compliant wallets.

(III) Catalyzing innovative application scenarios

Tokenized Real-World Assets (RWA): Compliant stablecoins become an ideal anchoring tool for tokenized assets such as bonds and real estate.

Central Bank Digital Currency (CBDC) Bridge: The Ordinance excludes the application of central bank digital currency (Article 3(2)(a)), paving the way for the future collaboration between Hong Kong dollar CBDC and private stablecoins.

IV. Risks and Challenges: Unsolved Problems

(I) Compliance Costs and Market Barriers

Small and Medium Enterprises Are Eliminated: Schedule 2 “Minimum Standards” require strict management and control systems, financial resources and risk management capabilities, which are difficult for start-ups to meet.

Continuous Compliance Pressure: Licensees are required to promptly report financial deterioration (Article 25), equity changes (Article 43), etc., and operating costs are high.

(II) Technical and operational risks

Blind spots in reserve audit: Although reserves are required to be auditable (Article 111), there is still a lack of technical standards for how to verify the transparency of reserves on the chain in real time.

Smart contract vulnerabilities: The regulations do not clearly specify code audit requirements. If a stablecoin contract is attacked by hackers, the definition of liability is unclear (Article 164 only mentions the liability of senior executives).

(III) Dilemma of cross-border coordination

Conflict of extraterritorial jurisdiction: Designation of foreign entities (Article 101) may trigger regulatory resistance from other countries.

Risk of regulatory arbitrage: The stringent Hong Kong system may drive issuers to move to looser jurisdictions such as Singapore and Dubai, which are only indirectly regulated through the “designated entity” system.

(IV) Concerns about market concentration

Bank-dominated ecosystem: Traditional financial institutions are more likely to obtain licenses, which may inhibit innovation in decentralized stablecoins (for example, algorithmic stablecoins are excluded from “specified stablecoins”).

Systemic risk transfer: If banks issue stablecoins on a large scale, the risk of a run may be transmitted to the traditional financial system (although Article 5(5) mentions financial stability, it does not set an upper limit on the concentration of issuance).

V. The Balanced Approach to Stablecoin Regulation in Hong Kong

The Stablecoin Ordinance highlights Hong Kong's regulatory philosophy of "same business, same risk, same rules". Its core value lies in:

• Investor Protection: Reduce risks such as "Tether decoupling" through reserve custody, licensee review and other systems;

• Financial Stability: Incorporate stablecoins into the macro-prudential framework to prevent systemic risks (Article 77 of the HKMA's intervention power);

• Innovation and Inclusion: Exemptions for specific institutions (Article 13) and transitional arrangements (Article 175) leave room for the market to adapt.

In the future, the implementation effect of the regulations and the formulation of detailed rules (such as Article 171 of the HKMA's guidelines) are closely related to the progress of cross-border cooperation. If Hong Kong can solve the problems of compliance costs and technical verification while maintaining regulatory flexibility, it is expected to become a global stablecoin hub and reshape the digital asset value chain. On the contrary, excessive stringency may force innovation to outflow and weaken the competitiveness of its Web3 center. Observation of the implementation of the transition period (Article 175) in the next two years will provide a key template for global stablecoin regulation.