Exploring the Impact: Could the Recent Stablecoins Legislation Elevate Hong Kong as a Leader in Asia's Virtual Asset Domain?
Hong Kong is set to become a global leader in virtual financial assets (VAs) and digital currencies, with the implementation of the Stablecoins Ordinance effective August 1, 2025. This landmark legislation marks Hong Kong as the first major international financial centre to implement comprehensive stablecoin legislation.
The Stablecoins Ordinance aims to address concerns about the Stablecoins Ordinance, which some believe may inadvertently exclude entrepreneurial innovators and risk shutting them out of Hong Kong. The anticipated Virtual Asset Over-the-Counter (VAOTC) regime is expected to alleviate these concerns, providing a much-needed solution for the issues raised about the Stablecoins Ordinance.
Under the Stablecoins Ordinance, any entity issuing fiat-backed stablecoins in Hong Kong must obtain a license from the Hong Kong Monetary Authority (HKMA). The requirements for FRS issuers are comprehensive and stringent, including AML/CFT compliance, asset segregation, redemption guarantees, risk management, and ongoing disclosure.
Issuers must be licensed entities with strong capital, fully backed and well-managed reserves, no interest payments to holders, rigorous AML/CFT compliance, and transparent governance to ensure financial stability and consumer protection. Each stablecoin must be fully backed by high-quality, highly liquid reserve assets in the same fiat currency.
The Stablecoins Ordinance also prioritizes user protection, giving stablecoin holders direct rights to reserve assets in case of issuer insolvency. Only licensed stablecoins may be offered to retail investors, strengthening safeguards against fraud. The framework provides clear redemption rights and legal protections for stablecoin holders.
The robust legal foundations of the framework are particularly important for institutional adoption. Financial giants like Ant Group and Standard Chartered Bank have reportedly lined up for licenses, indicating significant market interest in the new ordinance.
Looking ahead, Hong Kong's focus will shift towards the tokenisation of traditional financial assets and the digitalisation of national currencies, including the RMB. This could particularly impact family offices and other institutional investors who regularly use these instruments for cryptocurrency transactions.
The HKMA has been granted extensive powers to investigate and enforce compliance, with certain breaches constituting criminal offences. The Stablecoins Ordinance was passed by the Legislative Council in May, marking a significant step forward in Hong Kong's digital asset future.
Despite concerns, Hwang remains optimistic about Hong Kong's digital asset future, seeing the Stablecoins Ordinance as a crucial step towards institutional acceptance and adoption of VAs. The anticipated VAOTC regime is expected to address the issues raised about the Stablecoins Ordinance, paving the way for greater institutional adoption and making Hong Kong a global leader in virtual financial assets and digital currencies.
The Stablecoins Ordinance, effective August 1, 2025, requires any entity issuing fiat-backed stablecoins in Hong Kong to obtain a license from the Hong Kong Monetary Authority (HKMA), ensuring compliance with stringent regulations such as AML/CFT, asset segregation, and risk management (law, compliance, finance, business).
With the anticipated Virtual Asset Over-the-Counter (VAOTC) regime, the Stablecoins Ordinance aims to alleviate concerns of entrepreneurial innovators, providing a solution that fosters a conducive environment for business growth in the technology sector (technology, business, law).
