I shared some views in the inSight article last month on promoting the robust and sustainable development of stablecoins in Hong Kong and sounded a word of caution amidst public’s interest. Judging the market and public excitement over the past month, it seems necessary to further rein in the euphoria. Today, I would like to further expound on our regulatory perspectives and elaborate on the next steps for implementing the Stablecoins Ordinance in a robust and sustainable manner.
Avoiding Undue Speculation
Given the merits of stablecoins as an emerging payment instrument and their gradual integration into the mainstream financial system as regulation takes shape, it is natural for the public to be interested in and have expectations for their functionality and development prospects. That said, while it is necessary to guard against undue speculation caused by market and public opinions, some recent phenomena warrant our attention.
First, some discussion on stablecoins may be overly idealistic. There have been a lot of talks about stablecoins’ potential to disrupt the mainstream financial system, particularly payments. However, a significant gap emerges when translating the concept and theory into practical use cases and concrete programmes. Take Hong Kong for example, a few dozen institutions have proactively reached out to the HKMA so far, with some clearly expressing their intention to apply for a stablecoin issuer licence, while others are simply looking for a sounding board. A common takeaway from these engagements is that many proposals remain conceptual, presenting visions such as enhancing cross-border payment, supporting the development of Web3.0 or optimising the efficiency of foreign exchange market but lacking practical use cases. They also fail to put together viable and concrete plans as well as implementation roadmaps, let alone demonstrate their awareness of risks and competence in managing them. Among those that can provide viable use cases, some may lack the technical expertise in issuing stablecoins, as well as the experience and capabilities in managing various financial risks. Indeed, there are multiple ways to participate in the stablecoin ecosystem. It will be more practical for these institutions to collaborate with other stablecoin issuers by defining use cases, rather than seeking to become an issuer themselves.
What’s more concerning is the growing frothiness of the market. The recent hype surrounding stablecoins has led to excessive exuberance. For instance, a mere announcement of intention to explore stablecoin-related business or digital assets is enough for some listed companies to grab headlines and send stock prices and trading volumes soaring. Earlier on we have clearly stated that, in the initial stage, we will at most grant a handful of stablecoin issuer licences. In other words, a large number of applicants will be disappointed. Even for those who successfully obtain a licence, given the imperative for prudent development and the initial investments needed, how much stablecoin issuance business can contribute to the company’s short-term profitability is somewhat uncertain. Investors should remain calm and exercise independent judgement when processing "positive" market news. Moreover, fraudulent activities have recently been observed under the guise of promoting digital assets and stablecoins, resulting in public losses. The Stablecoins Ordinance will come into effect on 1 August. According to the Ordinance, starting from the commencement date, it will be illegal for any person to offer any unlicensed fiat-referenced stablecoin (FRS) to a retail investor, or actively market the issue of unlicensed FRS to the public of Hong Kong. We urge the public to stay vigilant to avoid violating the law inadvertently. The public should also stay cautious if you come across marketing of unlicensed stablecoins during this period.
Guarding Against Financial Risks
Stablecoin is also recently a frequently discussed topic among central banks and financial regulatory authorities. The focus of the discussions centres on its inherent and spillover risks including its impact on mainstream financial markets and banks. However, the greater concern lies in ways to prevent stablecoins from being used by criminals as a tool for money laundering, especially in cross-border use cases. The Bank for International Settlements, often referred to as the “central bank of central banks”, emphasised at great length the importance of preventing money laundering risks associated with stablecoins in their latest Annual Economic Report.
As an international financial centre, Hong Kong is widely recognised for its prudent regulatory standards. Following the passage of the Stablecoins Bill, we immediately consulted the market regarding the two implementation guidelines on supervision and anti-money laundering. We are currently refining the requirements based on the feedback, with a view to publishing the guidelines by the end of July. It is expected that the final version will not differ significantly from the consultation draft. However, in light of shared international regulatory concerns, more stringent requirements will be imposed in respect of anti-money laundering to minimise the risks of stablecoins being used as a money laundering tool. This is to ensure the orderly and healthy development of Hong Kong’s stablecoin market.
Regulation is an art of balancing divergent objectives. More stringent regulatory requirements will inevitably limit the room for stablecoin businesses to scale rapidly in the short term. Some market participants may have a different view. Nevertheless, it is better for regulated stablecoin business, which is still in its infancy, to start with stricter regulations to ensure sound operation. With practical experience gained, we will be in a position to be flexible in certain areas. This will be a more suitable approach than dealing with the consequences left by lax regulations. Having said that, we also recognise the importance of ensuring that the regulatory requirements are necessary and reasonable to create room for issuing entities to stand on their feet and thrive.
We are aware of recent market rumours about the application process. We will release the “Explanatory Note on Licensing of Stablecoin Issuers” next week, which will outline the HKMA’s arrangements for accepting and processing licence applications. Stay tuned.
Eddie Yue
Chief Executive
Hong Kong Monetary Authority
23 July 2025
