Key Takeaways
- Hong Kong has passed a stablecoin law that mandates licensing for companies issuing fiat-backed stablecoins and enforcing strict compliance on reserve, redemption, and AML standards.
- The Hong Kong Stablecoin law enables retail investors to join the market while allowing licensed entities to issue, advertise, and trade FRS under regulatory oversight.
- The move comes as the US Senate advances its stablecoin framework.
Legislators have passed the new Hong Kong stablecoin law, which will allow the development of fiat-pegged stablecoins and license issuers to sell these digital assets to the public.
According to a statement by Christopher Hui, the Secretary for Financial Services and the Treasury, the new law passed by the city’s Legislative Council requires FRS issuers to obtain a license from the Hong Kong Monetary Authority (HKMA).
Promote a Robust Regulatory Environment
The official explained that licensees had to comply with various requirements such as reserve asset management, redemption at par value, segregation of client funds, anti-money laundering controls, disclosure, and fitness and propriety standards. Hu said:
“The Ordinance adheres to the ‘same activity, same risks, same regulation’ principle, with a focus on a risk-based approach to promote a robust regulatory environment […] this is not only in line with international regulatory requirements but also lays a solid foundation for Hong Kong’s virtual asset market.”
Three-Month Window to Comply
The newly passed Hong Kong stablecoin law demands that all stablecoin issuers for fiat-pegged stablecoins, including offshore companies operating in Hong Kong, secure a license from HKMA. Applicants must adhere to steep requirements, including a minimum capital of $3.2 million or 1% of circulating stablecoins, whichever amount is higher.
Moreover, the firm’s senior managers are expected to live in the city-state and pass the government’s “fit and proper” checks even when directors stay abroad. Existing issuers of fiat-pegged stablecoins have a three-month window to update their licenses. Commenting on the move, a local fintech analyst said of the strict restrictions:
“This will filter out fly-by-night actors […] only serious players survive.”
The Hong Kong Stablecoin law further says stablecoins must be fully backed by fiat currency or an ultra-liquid asset like a bank deposit without exception. Issuers must also hold reserve funds separate from company accounts at an approved custodian or locally licensed bank.
GENIUS Act Must Pass Through Congress First
The new stablecoin law comes as US senators are advancing the country’s own stablecoin bill, the GENIUS Act. The US law recently cleared a key procedural vote that brought it closer to facilitating the creation of a nationwide legal framework for the issuance of stablecoin in the United States.
However, the GENIUS Act must still pass through Congress before it reaches President Donald Trump’s desk for signing into law. Commenting on the American situation, Justin d’Anethan, head of sales at token advisory firm Liquifi, opined:
“For a while, Hong Kong, Singapore, and, to some extent, Dubai held the crown regarding forward-leaning crypto policy. But the last six months flipped the script […] the US, long seen as adversarial, became the unexpected epicenter of pro-crypto regulatory momentum.”
Conclusion
The Hong Kong stablecoin law, which is expected to become fully operational later this year, includes transitional provisions that will help issuers if fiat-pegged stablecoins adjust to the new regulatory regime. Meanwhile, stablecoin trading is growing, with volumes reaching 27.6 trillion in 2024. A report by crypto exchange CEX.io shows that the amounts surpassed the combined volume of Visa and Mastercard transactions over the same period.
Frequently Asked Questions
What is Hong Kong’s compliance with crypto?
The Hong Kong Securities and Futures Commission (SFC) manages compliance with strict rules to protect customers and prevent illegal activities. The city-state’s approach seeks a blend of innovation and legal clarity.
What are the rules for Hong Kong cryptocurrency?
Under Hong Kong cryptocurrency law, digital assets are not legal tender and do not qualify as money. No ordinance directly regulates these classes of products.
Is crypto taxed in Hong Kong?
Unlike other countries, Hong Kong has no capital gains tax on cryptocurrency, so you don’t pay taxes on profits from simply buying and selling cryptocurrencies. However, individuals who trade frequently are still subject to tax payments.
