Hong Kong has made a decisive leap in digital asset supervision with the introduction of its comprehensive regulatory regime for stablecoin issuers, due to take effect on 1 August 2025. This move reflects both a response to the explosive growth of stablecoins in global payments and investments, and an attempt to establish the city as a trusted hub for regulated digital finance. The new framework is built around a licensing regime, robust anti-money laundering and counter-financing of terrorism (AML/CFT) requirements, and enforceable conduct standards for all stablecoin issuers operating in or marketing to Hong Kong.

Stablecoin Issuer Regulation

The Stablecoins Ordinance, which was gazetted earlier this year, requires any entity intending to issue or market stablecoins to Hong Kong residents to obtain a license from the Hong Kong Monetary Authority (HKMA). The legislative move followed years of consultation, industry engagement, and the recognition that unchecked stablecoin activity could heighten money laundering, terrorism financing, and fraud risks. Now, market participants face detailed rules governing who can issue stablecoins, how these must be managed, and what steps are necessary to minimize financial crime exposure in a sector notorious for regulatory arbitrage.

By setting out licensing criteria and clear guidance on AML/CFT controls, the regime targets the core financial crime risks associated with stablecoins: high velocity of transfers, cross-border pseudonymity, and the use of digital wallets beyond traditional banking oversight. This article analyzes the essential features of Hong Kong’s new regime, compares its approach to international standards, and considers what the new licensing and supervision measures will mean for financial institutions, fintechs, and crypto service providers with exposure to the city.

Stablecoin AML/CFT Requirements and International Benchmarking

Stablecoin issuer regulation in Hong Kong pivots on mandatory compliance with advanced AML/CFT standards. The finalised Guideline on Anti-Money Laundering and Counter-Financing of Terrorism for Licensed Stablecoin Issuers integrates FATF Recommendations, leveraging Hong Kong’s existing legal and regulatory structure to address sector-specific risks.

Issuers must implement a full suite of controls, including comprehensive customer due diligence (CDD), ongoing transaction monitoring, and robust suspicious transaction reporting processes. Particular emphasis is placed on risk assessment and risk-based procedures, reflecting the need to tailor controls to the unique characteristics of stablecoin products—such as programmability, global accessibility, and rapid settlement times. Issuers must also adopt systems capable of detecting and mitigating typologies specific to digital assets, like layering through multiple wallets, mixer or tumbler use, and the movement of funds through high-risk exchanges.

The regulatory expectations mirror FATF’s Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers, updated most recently in March 2024. Hong Kong’s rules go further by prescribing explicit requirements for independent audit, record-keeping, and senior management accountability. Periodic internal audits of AML/CFT frameworks and external assurance on transaction monitoring capabilities are now standard. Issuers must maintain detailed records of wallet holders, including beneficial ownership information, for at least six years.

A distinctive feature is the alignment of Hong Kong’s approach with its broader AML/CFT legal regime, as set out in the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615). Licensed issuers are now treated akin to financial institutions, with the same regulatory expectations on risk management, employee training, and escalation of suspected illicit activity to the Joint Financial Intelligence Unit (JFIU).

Hong Kong’s focus on early detection and prevention extends to prohibiting the anonymous or pseudonymous issuance of stablecoins, and requiring issuers to ensure that all redemption and withdrawal channels have robust KYC. Enhanced due diligence is required for higher-risk transactions, such as large-value cross-border transfers, interactions with unhosted wallets, and activities involving jurisdictions with strategic AML deficiencies.

Licensing Process and Compliance Obligations for Stablecoin Issuers

For any entity wishing to issue stablecoins in Hong Kong, the licensing application process is now rigorous and detailed. The Explanatory Note on Licensing of Stablecoin Issuers, published by the HKMA, sets out both the procedural steps and the substantive criteria for evaluation.

Applicants must demonstrate a comprehensive governance structure, including the appointment of fit-and-proper directors and a dedicated compliance officer responsible for AML/CFT. The licensing process assesses not just the operational capabilities of the applicant, but also the source of funding, business model transparency, and evidence of systems capable of identifying and reporting suspicious activity in real time.

One key threshold is the requirement to maintain full backing for stablecoins in approved reserve assets, subject to regular audit and disclosure. Issuers must also operate a robust IT infrastructure, with secure wallet management and clear protocols for incident response, cyber risk, and data protection. A stablecoin’s design—whether algorithmic, fiat-backed, or commodity-linked—must be documented in detail, with clear disclosure to end users and the regulator.

Transitional provisions apply to existing stablecoin operators, requiring them to contact the HKMA and initiate the licensing process if they wish to continue serving the Hong Kong market beyond the cut-off dates. These operators must demonstrate interim compliance with the main risk mitigation measures, even before full licensing is granted. The HKMA has emphasized that licensing will be an ongoing process, and that early applications are encouraged for those ready to meet the regulatory expectations.

Crucially, the regime introduces criminal and administrative penalties for unlicensed operations. It is now an offence to market or represent oneself as a licensed stablecoin issuer without HKMA authorization. False claims of licensed status can trigger both criminal prosecution and regulatory sanctions. The public is encouraged to verify the licensing status of stablecoin issuers on the official HKMA register and exercise caution when dealing with unlicensed products.

Challenges and Opportunities for Market Participants

The rollout of the stablecoin licensing regime presents both challenges and opportunities for market participants. For international stablecoin issuers, Hong Kong’s requirements may represent a significant compliance burden, but also a potential path to legitimacy in a region that remains central to the digital asset economy.

From a risk management perspective, the regime imposes clear obligations on stablecoin issuers to build out strong AML/CFT frameworks from the ground up, including sophisticated transaction monitoring and wallet analytics. Financial institutions partnering with or servicing stablecoin issuers will need to update their own onboarding and monitoring processes to ensure counterparties are licensed and compliant. Banks, custodians, and payment firms face new due diligence expectations regarding the origin and nature of stablecoin transactions, and must monitor for potential exposure to unlicensed operators.

For fintechs and crypto businesses, the clarity provided by the HKMA may offer a competitive edge in marketing to institutional and retail customers wary of regulatory risk. The licensing process itself may serve as a market filter, driving weaker or non-compliant projects out and supporting more robust, transparent offerings. Companies that invest early in compliance infrastructure—including automated transaction screening, machine learning-based anomaly detection, and integrated KYC/KYB platforms—are likely to benefit from smoother licensing and regulatory engagement.

However, the new rules may also lead to market consolidation, with smaller operators exiting due to the cost of compliance or the inability to meet regulatory expectations. Some global players may choose to restrict access to Hong Kong residents to avoid the licensing regime, creating challenges for end users seeking cross-border stablecoin services.

Consumer protection is another key element of the new framework. The requirement for full disclosure of reserve assets, regular audit, and real-time redemption mechanisms helps to address past issues seen with failed stablecoin projects. The regime also prohibits advertising or marketing of stablecoins as “regulated” or “licensed” unless the issuer is listed on the HKMA’s public register, reducing the risk of investor confusion or fraud.

What Lies Ahead for Stablecoin Supervision in Hong Kong

Hong Kong’s new regulatory regime for stablecoin issuers marks a watershed moment for digital asset supervision in Asia. By embedding strict AML/CFT obligations, licensing requirements, and clear conduct standards, the city seeks to balance innovation with the highest level of financial crime prevention.

The future trajectory of stablecoin supervision will depend on the effective implementation of these rules and the HKMA’s willingness to adapt as new risks emerge. Ongoing dialogue with industry, alignment with global standards, and investment in supervisory technology will be critical. As no licenses have yet been issued, early enforcement actions or licensing approvals will set the tone for the market and signal the city’s seriousness in enforcing compliance.

Market participants will need to invest in technology, talent, and governance to meet the bar set by Hong Kong regulators. The coming year will likely see the first cohort of licensed issuers, enhanced scrutiny of digital asset activity, and possibly the emergence of Hong Kong as a regional leader in regulated stablecoin issuance. For both financial institutions and digital asset service providers, engagement with the HKMA and proactive compliance preparation will be essential to operate in this new, tightly supervised environment.

Hong Kong’s approach, blending global best practice with local specificity, is likely to be watched closely by regulators and industry players around the world as the blueprint for responsible stablecoin adoption in a rapidly evolving digital finance landscape.

Related Links

• Guideline on Supervision of Licensed Stablecoin Issuers (Finalised)
• Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (Stablecoin Issuers)
• Stablecoins Ordinance – Hong Kong e-Legislation
• HKMA Register of Licensed Stablecoin Issuers

Other FinCrime Central Articles About HKMA’s Regulation Changes

• HKMA AML Penalty Forces 3 Banks to Overhaul Compliance
• HKMA, HKPF, and HKAB Unveil Strong Measures to Combat Money Laundering and Mule Accounts
• HKMA Enhances ATM Security with Expanded Suspicious Account Alerts

Source: HKMA

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