(A) Introduction
On
21 May 2025, Hong Kong’s Legislative Council passed the Stablecoins Bill,
establishing a licensing regime for fiat-referenced stablecoins (FRS) issuers
in Hong Kong and further enhancing Hong Kong’s regulatory framework on
virtual-asset (VA) activities.[1][2]
This marks a significant milestone in crypto regulation. The Stablecoins
Ordinance (the “Ordinance”) was gazetted on 30 May 2025[3]
and will take effect on 1 August 2025.[4] As
stated in its preamble, the Ordinance aims to provide for the supervision of
stablecoin-related activities and to provide the Monetary Authority (“HKMA”) with
investigatory and enforcement powers.[5] The
Ordinance is the first stablecoin regulation in Asia and carries significant
weight in global crypto regulation.
Subsequently,
on 26 May 2025, the HKMA published two consultation papers, namely “Consultation
Draft Guideline on Supervision of Licensed Stablecoin Issuers” (“Consultation
Draft Guideline”) and “Consultation Paper on the Proposed AML/CFT Requirements
for Regulated Stablecoin Activities”.[6] The
Consultation Draft Guideline specifically aims to enhance protections for
stablecoin holders by outlining the HKMA's expectations for licensees regarding
minimum ongoing requirements.[7]
This article examines the scope of consumer protection under the Ordinance and highlights its potential limitation.
(B) Key Consumer Protections under the Ordinance
The Ordinance aims to protect consumers through transparency, financial safeguards and robust enforcement mechanisms, ensuring they are properly informed of risks, how their funds are protected, and that licensees must meet strict regulatory standards.
- Mandatory Licensing & Strict Criteria: Only licensees can issue a specified stablecoin in Hong Kong in the course of business; (ii) issues a specific stablecoin in a place outside Hong Kong in the course of business, and the stablecoin purports to maintain a stable value with reference (whether wholly or partly) to the Hong Kong dollar; or (iii) carries on an activity otherwise designated by the HKMA.[8] Licensees must meet minimum criteria, including:[9] (1) being a company incorporated in Hong Kong or an authorised institution incorporated outside Hong Kong;[10] and (2) maintaining adequate financial resources and liquid assets to meet all actual and contingent obligations as they will or may fall due.[11] Unlicensed operation is a criminal offence, punishable by fines up to HK$500,000 and imprisonment (up to 7 years on indictment; up to 2 years summarily). Further, the HKMA can suspend or revoke licenses for non-compliance.[12]
- Reserve Asset Requirements: The HKMA imposes strict conditions on the administration, maintenance, management, composition, use and regulation of reserve assets.[13] Licensees must (1) maintain segregated, high-quality, highly liquid reserve assets with minimal risk to fully back issued stablecoins,[14] (2) implement adequate risk management policies for managing these assets[15] and (3) establish control systems ensuring regular independent attestation and audit.[16]
- Insolvency Protection for Holders: Creditors' voluntary winding-up procedures (Companies (Winding Up) Ordinance Cap. 32) do not apply to licensees.[17] Licensees must ensure that each specified reserve assets pool is adequately protected against claims by other creditors of the licensees in all circumstances and is kept separate from any other funds paid to or maintained or received by the licensees.[18] Further, licensees must ensure stablecoin holders can redeem tokens at their full face value in the referenced currency as soon as practicable, without unduly burdensome conditions or unreasonable fees.[19] Besides, licensees must, in respect of each type of specified stablecoins issued by the licensee, provide each holder, exercisable upon the licensee’s insolvency, the right to direct the disposal of the specified reserve assets pool to redeem all the outstanding stablecoins of that type on a pro rata basis; and (2) claim against the licensees for any shortfall if disposal proceeds are insufficient for full redemption.[20] To protect assets and ensure orderly handling during financial distress or winding-up, the HKMA can appoint a statutory manager.[21] This mechanism safeguards customer funds even if the licensee fails.
- Disclosure Obligations: The register of licensees must be made available for public inspection as specified by the HKMA.[22] Licensees must display license numbers on all advertising materials/consumer-facing interfaces,[23] immediately report to the HKMA if likely to become insolvent or unable to meet obligations.[24] Failure to comply is a criminal offence. For missing license number, the offence punishable by a fine at level 6 and in the case of a continuing offence, to further fine of $10,000 for every day during which the offence continues.[25] For failure to report, the offence punishable on summary conviction by a level 6 fine and imprisonment for 6 months, and on conviction on indictment by a fine of $400,000 and imprisonment for 2 years; in the case of a continuing offence, a further fine of $10,000 for every day during which the offence continues also applies.[26] This allows for early intervention by the HKMA, including the appointment of a statutory manager to take control of the licensee’s affairs,[27] the revocation of the licence[28] and temporary suspension of the licence[29] to prevent further customer losses.
- Preventing Fraud & Misconduct: It is an offence in a transaction involving a specified stablecoin to: (a) use any device, scheme, or artifice with intent to defraud or deceive; (b) engage in fraudulent, deceptive, or deceitful conduct or business activities; or (c) make fraudulent or reckless misrepresentations to induce others to acquire or subscribe for specified stablecoins.[30] Further, a person must not publish, or possess for publication, an advertisement or document knowingly holding someone out as issuing or offering specified stablecoins, unless an exemption applies.[31]
- HKMA’s Investigation and Enforcement Power: The HKMA has broad powers to investigate suspected breaches of the Ordinance,[32] including the power to compel the production of documents[33] and require answers to be verified by statutory declaration.[34] Failure to comply with these investigative demands is an offence.[35]
(C)
Potential
Limitation
(D)
Conclusion
[1] https://www.hkma.gov.hk/eng/news-and-media/press-releases/2025/05/20250521-3/
[2] Under Section 3(1) of Stablecoins
Ordinance,“stablecoin” is defined as a cryptographically secured digital
representation of value that (a) is expressed as a unit of account or store of economic
value; (b) is used, or intended to be used, as publicly accepted medium of
exchange for payment for goods or services, discharge of a debt and/or
investment; (c) can be transferred, stored or traded electronically; (d) is
operated on a distributed ledger or similar information repository; and (e) purports
to maintain a stable value with reference to a single asset, or a pool or
basket of assets. Under Section 3(2) of Stablecoins Ordinance, the above definition
excludes a digital representation of value that is issued by a central bank (or
an entity performing the functions of, or authorised by, a central bank) or a government
(or an entity authorised by a government to issue currency) or otherwise falls
within the scope of other regulation; namely, the Anti-Money Laundering and
Counter-Terrorist Financing Ordinance (Cap. 615)(which applies to limited
purpose digital tokens); the Securities and Futures Ordinance (Cap. 571) (which
applies to securities or futures contracts); the Payment Systems and Stored
Value Facilities Ordinance (Cap. 584) (which applies to floats or SVF
deposits); and the Banking Ordinance (Cap. 155) (which applies to deposits).
[3]https://www.gld.gov.hk/egazette/english/gazette/volume.php?year=2025&vol=29&no=22&extra=0&type=1
[4]https://www.gld.gov.hk/egazette/english/gazette/file.php?year=2025&vol=29&no=23&extra=0&type=2&number=125
[5] Preamble, Stablecoins
Ordinance
[6] https://www.hkma.gov.hk/eng/regulatory-resources/consultations/open/
[7]https://www.hkma.gov.hk/media/eng/regulatory-resources/consultations/20250526_Consultation_on_Draft_Guideline_on_Supervision_of_Licensed_Stablecoin_Issuers.pdf
[8] Section 5(1) and
Section 8, Stablecoins Ordinance
[9] Section 24 and Schedule
2, Stablecoins Ordinance
[10] Section 14, Stablecoins
Ordinance
[11] Section 4 of Schedule
2, Stablecoins Ordinance
[12] Section 28, 33, Stablecoins
Ordinance
[13] Section 17(2)(b), Stablecoins
Ordinance
[14] Section 5(4) of Schedule
2, Stablecoins Ordinance
[15] Section 5(6)(a) of Schedule
2, Stablecoins Ordinance
[16] Section 5(6)(b) of Schedule
2, Stablecoins Ordinance
[17] Section 98(1), Stablecoins
Ordinance
[18] Section 5(4) of Schedule
2, Stablecoins Ordinance
[19] Section 6(2) of Schedule
2, Stablecoins Ordinance
[20] Section 6(4) of Schedule
2, Stablecoins Ordinance
[21] Section 80, Stablecoins
Ordinance
[22] Section 21, Stablecoins
Ordinance
[23] Section 23, Stablecoins
Ordinance
[24] Section 25, Stablecoins
Ordinance
[25] Section 23(2), Stablecoins
Ordinance
[26] Section 25(2), Stablecoins
Ordinance
[27] Section 80, Stablecoins
Ordinance
[28] Section 28, Stablecoins
Ordinance
[29] Section 32, Stablecoins
Ordinance
[30] Sections 11-12, Stablecoins
Ordinance
[31] Section 10, Stablecoins
Ordinance
[32] Section 116, Stablecoins
Ordinance
[33] Section 117, Stablecoins
Ordinance
[34] Section 118, Stablecoins
Ordinance
[35] Section 120, Stablecoins
Ordinance
[36] Section 25(1)(a),
Stablecoins Ordinance
[37] Section 27(2),
Stablecoins Ordinance
[38] Page 22, Consultation
Paper CP25/14: Stablecoin Issuance and Cryptoasset Custody published by UK
Financial Conduct Authority. Reference: https://www.fca.org.uk/publication/consultation/cp25-14.pdf
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