Hong Kong’s Stablecoin Bill: Key Amendments and Next Steps Following Legislative Passage

On 21 May 2025, the Hong Kong Legislative Council passed the much-anticipated Stablecoins Bill (“Bill”), now citable as the Stablecoins Ordinance (“Ordinance”), marking a significant milestone in the city’s ambition to become a leading international hub for virtual assets.

First gazetted in December 2024, the Ordinance establishes a comprehensive regulatory regime for the eponymous digital assets, introducing a licensing framework for stablecoin issuers and service providers, and setting out robust requirements for reserve management, redemption, risk controls, and governance.

While the core features of the Ordinance remain as previously summarized in our previous article regarding the Bill — mandatory licensing for stablecoin issuers, strict reserve asset requirements, redemption rights for holders, and broad enforcement powers for the Hong Kong Monetary Authority (“HKMA”) — the Ordinance incorporates several notable amendments. These changes, together with the launch of detailed post-enactment consultations and draft guidelines, signal Hong Kong’s commitment to a pragmatic, risk-based, and internationally aligned approach to stablecoin regulation.

Key Amendments in the Ordinance

The Bill underwent a number of technical and substantive amendments during its passage through the Legislative Council. Notable amendments are summarised below:

1. Refined Meaning of “Specified Stablecoin”: The Ordinance defines a “specified stablecoin” as a stablecoin that purports to maintain a stable value with reference to one or more fiat currencies, or one or more specified units of account, or one or more stores of economic value (of a combination of any of these). While the substantive scope of a “specified stablecoin” is under the Bill and the Ordinance does not change, the latter introduces structural amendments – mainly by creating separate sub-sections for “units of account” and “stores of economic value” – providing greater clarity and certainty in interpretation.
2. Expanded Meaning of “Permitted Offerors”: Organizations that are “permitted offerors” within the meaning of the Bill/Ordinance are able to lawfully issue stablecoins. Under the Bill, only licensed stablecoin issuers and a narrow set of financial institutions could offer stablecoins to the Hong Kong public. The Ordinance expands the definition to include stored value facility (“SVF”) licensees under the Payment Systems and Stored Value Facilities Ordinance (Cap. 584). This recognises the evolving payments landscape and the role of SVFs in digital finance, broadening market access while maintaining regulatory oversight.
3. Immediate and Objective Reporting of Financial Distress: Under the Bill, a licensee was required report to the HKMA if “[a]s soon as practicable after it appears to a licensee that it is likely to become unable to meet its obligations, is insolvent or is about to suspend payment.” In the Ordinance, this subjective trigger was replaced with an objective standard – a licensee must now report “immediately” to the HKMA when it is, in fact, unable to meet its obligations, is insolvent, or about to suspend payment. This removes ambiguity and ensures timely regulatory intervention.
4. Procedural requirements for imposing sanctions: Under the Bill, where the HKMA decides to impose a sanction on a “regulated person” (i.e., a licensee, a designated stablecoin entity, or the officers of these organisations), the HKMA must give that person written notice stating the sanction imposed (including the amount of pecuniary penalty to be paid) and the ground for imposing the sanction. The Ordinance introduces additional matters to be included in a written notice to the sanctioned regulated person – specifically, details as to the time at which the decision is to take effect; a statement that the person may refer the decision to the Stablecoin Review Tribunal (“Tribunal”) for review; and, in the event the sanction takes the form of a caution, warning, or reprimand, the terms in which the person is to be cautioned, warned, or reprimanded. These changes strengthen transparency and due process without altering the established process for the imposition of sanctions.
5. Enhanced Powers for the Tribunal: The Ordinance establishes the Tribunal to review HKMA decisions (for example, to revoke a licence, impose sanctions, designate an entity, or refuse certain consents). While no substantive changes were made to the composition and jurisdiction of the Tribunal, the Ordinance introduces an express provision empowering the Tribunal to stay the execution of a HKMA decision, on application of the aggrieved party, pending the completion of the review.

Post-Enactment Consultations and Draft Guidelines

Following the Bill’s passage, the HKMA moved swiftly to consult on the detailed implementation of the new regime. Two key consultation documents were released on 26 May 2025:

Key points of guidance may be summarized as follows:

Reserve Asset Management

• Stablecoins must be fully backed at all times by high-quality, highly liquid reserve assets (such as short-term bank deposits, certain marketable debt securities, dedicated investment funds, or other assets approved by the HKMA), with regular reconciliation and over-collateralisation to cover market risks.
• Reserve assets must generally be denominated in the reference currency (with limited flexibility for the reserve assets of HKD-referenced specified stablecoins to be denominated in USD; or otherwise as permitted by the HKMA on a case-by-case basis), held on trust, segregated from the issuer’s own assets, and safeguarded by qualified custodians.
• Licensees are prohibited from paying interest or interest-like incentives to stablecoin holders, except for marketing incentives that do not amount to payment of interest.
• Licensees must publicly disclose matters such as their reserve management policy, the composition and market value of their reserve assets as well as the results of regular independent attestation and audit of their reserve assets. Daily statements on reserves and outstanding stablecoins must be prepared, with mandatory weekly reporting to the HKMA and regular updates to relevant information on a publicly accessible website.

Issuance, Redemption, and Distribution

• Issuance must be prudent and sound, and matched by corresponding increases in reserve assets.
• Redemption requests must be fulfilled at par value within one business day, without unreasonable fees or conditions. Holders are also to be granted the right to direct disposal of reserve assets to facilitate redemption on a pro-rata basis and the right to claim shortfalls in redemption, even in the event of the licensee’s insolvency.
• Distribution via third parties is permitted, so long as they are prudent and sound, subject to appropriate vetting and controls to ensure value stability and manage conflicts of interest.

Business Activities

• Licensees must obtain consent from the HKMA for non-stablecoin business activities and must manage risks and conflicts of interest.
• Issuing multiple types of stablecoins is permitted, provided the licensee satisfies the HKMA as to proof of adequate capabilities and resources and no adverse impact to existing issuance activities.

Financial Resources

• Licensees must have minimum paid-up share capital of HK$25 million (or equivalent in a freely convertible currency). Additional financial resource requirements may be imposed by the HKMA.

Risk Management and Internal Controls

• Licensees must implement comprehensive risk management frameworks covering credit, liquidity, market, technology, operational, and reputational risks – including measures such as regular stress testing, incident response planning, and robust internal controls.
• Three lines of defence should be implemented: business units, independent risk/compliance functions, and internal audit.

Corporate Governance

• Licensees should have a clear organisational structure, defined responsibilities, and transparent decision-making processes.
• At least one-third of the board must be independent non-executive directors.
• Senior management and key personnel must meet fitness and propriety standards, with HKMA approval required for appointments.

Business Practices and Conduct

• Robust information and accounting systems must be maintained, with accurate record-keeping and audit trails.
• Effective complaints handling and redress mechanisms must be accessible to all stablecoin holders.
• Licensees must publish a white paper and maintain up-to-date public disclosures on reserve management, redemption mechanisms, and associated risks.
• Regular audits and attestations are required, with immediate reporting of unresolved discrepancies or breaches to the HKMA.

2. Consultation Paper on Proposed AML/CFT Requirements (“Consultation Paper”): The HKMA’s consultation on anti-money laundering and counter-terrorist financing (AML/CFT) requirements for regulated stablecoin activities proposes a comprehensive, risk-based framework aligned with international standards.

Key points of this proposed framework may be summarized as follows:

• Licensees should implement effective, risk-based AML/CFT policies, procedures, and controls covering governance, risk assessment, staff training, sanctions, suspicious transaction reporting, and record-keeping.
• Customer due diligence (CDD) should be conducted, including on persons who have a business relationship with licensees and who conduct occasional transactions of HK$8,000 or above. For stablecoin transfers to custodial wallets, licensees should identify and conduct due diligence on the institution providing the wallet. Additional controls are required for transfers to or from unhosted wallets, including enhanced monitoring, wallet screening, and possible transaction limits.
• Licensees should establish and maintain effective systems for monitoring and screening of stablecoin transactions and associated wallet addresses. Technological solutions (e.g., blockchain analytics) should be adopted to assist in detection of suspicious or illicit activity.
• The “Travel Rule” (i.e., Section 13A of Schedule 2 of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance) applies to stablecoin transfers, requiring licensees to comply with information-sharing obligations depending on their role in the transaction.
• Ongoing monitoring and additional measures should be adopted to prevent and detect illicit use of stablecoins in secondary markets, such as blacklisting suspicious wallet addresses and confining distribution to regulated entities.

Conclusion

The passage of the Stablecoins Bill cements Hong Kong’s position at the forefront of digital asset regulation in Asia. The amendments made during the legislative process reflect a careful balancing of innovation, market access, and risk mitigation, with further guidelines expected to provide further clarity for industry participants.

The Ordinance comes into force on 1 August 2025, with a six-month transitional period for existing operators. The HKMA is accepting feedback on the Draft Guideline and Consultation Paper until 30 June 2025, and further consultations on stablecoin custody and over-the-counter services are anticipated. The coming months will be critical in shaping the practical operation of Hong Kong’s stablecoin regime and its impact on the broader virtual asset ecosystem. As the regime moves towards implementation, stablecoin issuers, service providers, and financial institutions should closely review the new requirements, conduct gap analyses of their existing frameworks, and prepare for licence applications and ongoing compliance.