Interpretation of Hong Kong Stablecoin Application Guidelines: The first batch of licenses are expected to be issued early next year, and holders must complete identity verification

Author: Nancy, PANews

Hong Kong's stablecoin regulation is accelerating into a substantive phase.

With the Stablecoin Ordinance set to officially come into effect on August 1, 2025, the Hong Kong Monetary Authority (HKMA) released a series of supporting regulatory documents on July 29th, including the "Guidelines for the Supervision of Licensed Stablecoin Issuers," the "Guidelines on Combating Money Laundering and Counter-Terrorist Financing (Applicable to Licensed Stablecoin Issuers)," and the "Summary Explanation of the Licensing Regime for Stablecoin Issuers." These documents establish a comprehensive regulatory framework covering application, operation, asset management, and anti-money laundering compliance.

These guidelines not only provide a clear application path and compliance standards for the stablecoin market, but also demonstrate that Hong Kong is strengthening risk prevention and control while leaving policy space for the innovative development of stablecoins. This article will review the key policy points of the relevant stablecoin guidelines and provide an in-depth explanation of the regulatory requirements and practical approaches. The first batch of stablecoin licenses will be announced early next year. Companies that fail to apply will be required to exit their businesses by November. "Licensing will be an ongoing process. If individual institutions believe they are fully prepared and wish to be considered sooner, they should submit their applications to the Hong Kong Monetary Authority before September 30," the Hong Kong Monetary Authority stated. Currently, the HKMA has not issued any licenses. The first batch of licensed stablecoin issuers is expected to be announced as early as early 2026, with a focus on cross-border trade and Web3 applications. Only a few licenses will be issued in the first phase, with a high qualification threshold. Applications submitted before September 30 will be prioritized. The HKMA will publish the names of licensed stablecoin issuers on its website.

After the Hong Kong Stablecoin Ordinance came into effect on August 1, the HKMA established a six-month transition period (until January 31, 2026) for fiat-currency stablecoin issuers that already have significant and substantive operations in Hong Kong. This period includes the issuance of temporary licenses to issuers capable of complying with regulatory requirements. During the first three months after the Stablecoin Ordinance came into effect (i.e., before October 31, 2025), existing issuers interested in applying for a license must submit a licensing application and relevant supporting documents, including a business plan and legal compliance statement, and designate personnel to carry out designated activities. Issuers whose applications are successfully submitted and confirmed by the HKMA may continue to engage in regulated stablecoin activities until January 31, 2026. If an application is not completed on time, is rejected, or withdrawn, these issuers will enter a one-month winding-up period starting November 1, 2025. During this period, they will be required to exit their business in an orderly manner and be subject to strict oversight by the HKMA, including measures such as asset preservation and activity restrictions. Entities that continue to conduct or hold themselves out as conducting regulated stablecoin activities after the winding-up period will be in violation of the regulations and commit a criminal offense. It is important to note that simply establishing a company or operating a shell business in Hong Kong is not sufficient to be considered a pre-existing stablecoin issuer. Implementation of KYC regulations, with consideration for higher regulatory thresholds in the future. Regarding risk management, licensed stablecoin issuers may only entrust approved service providers to conduct the offering of fiat stablecoins, and such offerings must be approved by a license. Approved providers include licensees, authorized institutions under the Banking Ordinance, entities with payment licenses, approved virtual trading platforms that comply with the Anti-Money Laundering Ordinance, and Type 1 licensees approved by the Securities and Futures Commission of Hong Kong. The HKMA also explicitly requires that custodial assets must be strictly segregated from the licensee's own assets, and that reserve asset management policies and audit results must be disclosed regularly. Furthermore, the HKMA requires licensees to employ technical measures such as multi-signatures, pre-minting mechanisms, secure private key management, smart contract security audits, and WYSIWYG. The HKMA also recommends implementing multiple verifications through off-chain rehearsals to enhance risk mitigation. Beyond the technical and asset aspects, the guidelines also emphasize that stablecoin issuers must have a clear board structure and a robust internal control system. To foster a safe and compliant environment for Hong Kong's stablecoin market, the HKMA has issued the "Guidelines on Combating Money Laundering and Counter-Terrorist Financing (Applicable to Licensed Stablecoin Issuers)," which clarify anti-money laundering regulatory requirements, including risk assessment, customer due diligence, ongoing monitoring, stablecoin transfer compliance, and suspicious transaction reporting. Specifically, in its ongoing monitoring, the HKMA requires licensed stablecoin issuers to implement effective measures to identify and verify the identities of stablecoin holders. Customers must undergo a comprehensive customer due diligence (CDD) process and conduct regular reviews (e.g., name, date of birth, identification number, etc., which must be retained for at least five years). Non-customer holders generally do not require direct identity verification. However, if monitoring identifies wallet addresses associated with illegal activities, sanctions lists, or suspicious sources, and the licensee cannot demonstrate that its risk mitigation measures (e.g., blockchain analysis tools) are sufficient to protect against ML/TF risks, the licensee must conduct further investigation and verify the identity of the relevant holders.

Regarding the requirement for stablecoin holders to complete identity verification, industry insiders have expressed concerns that this may limit the number and scale of stablecoin users.

It is worth noting that the HKMA also stated that it will continue to explore the establishment of a supervisory recognition mechanism with other jurisdictions, monitor international regulatory developments on systemic stablecoins, and consider establishing higher regulatory thresholds when appropriate.

Requires full reserve asset backing, and the issuance of multi-currency stablecoins is permitted.

Regarding the reserve asset backing capacity of stablecoins, the regulatory guidelines clearly state that all issued stablecoins (including frozen or blacklisted ones) must be fully asset-backed. Eligible reserve assets include cash, bank deposits, marketable debt securities, and other high-quality, highly liquid, and low-risk assets approved by the HKMA. The HKMA will implement a proportionality supervisory approach, applying differentiated risk mitigation requirements based on the type and structure of reserve assets held by licensees. However, the custodian must be a licensed bank in Hong Kong or a financial institution with equivalent qualifications. Licensees may issue "specified stablecoins" pegged to different fiat currencies based on market demand, but new currencies must be approved by the HKMA. Licensees must also demonstrate appropriate governance, technical capabilities, and resource support to avoid spillover risks from multi-currency management. To enhance the flexibility and efficiency of reserve assets, the HKMA adopts a technology-neutral approach, allowing licensees to hold eligible assets as reserves in tokenized form, subject to written approval from the HKMA. In exceptional circumstances, the HKMA allows licensees to apply for currency mismatches, but this requires case-by-case approval and justification.

In addition, the HKMA requires licensees not to pay interest on their issued stablecoins, does not restrict offshore custody of reserve assets, and allows third-party investment managers to manage assets, provided that licensees ensure asset transparency, security, and liquidity, and regularly disclose audited reserve reports to enhance market confidence.

Regarding issuance, redemption, and distribution, the guidelines require licensees to establish efficient, transparent, and user-friendly processes. Redemption requests must be processed within a reasonable timeframe, without unreasonable thresholds or fees. Although the Stablecoin Regulations stipulate that redemption requests must be processed within one business day, this timeframe refers to the processing time after the holder has completed the required conditions (such as identity verification and fund routing confirmation), and the time required for pre-processing compliance reviews is not included in the processing timeframe.

Notably, the HKMA does not require stablecoin issuers to establish a market maker mechanism, but if such an arrangement is established, potential conflicts of interest and market manipulation risks must be mitigated. To support the global development of Hong Kong's stablecoin market, the HKMA supports distribution through overseas channels, but issuers must establish comprehensive compliance and risk control systems. Furthermore, with regard to accessing related services via VPNs, regulators adhere to a risk-based approach and refrain from blanket blocking of technical means. Applicants must maintain paid-in capital of no less than HK$25 million and establish a local office in Hong Kong. Any institution intending to engage in stablecoin issuance and related activities must obtain approval from the HKMA. Applicants and licensees must continue to meet certain criteria to ensure the compliance, robustness, and investor protection of stablecoin issuance activities. Applicants must be companies incorporated in Hong Kong or authorized institutions incorporated outside of Hong Kong. Regardless of whether the applicant is a Hong Kong or overseas corporation, they must establish a substantial operational presence in Hong Kong and clearly state their Hong Kong operational arrangements in their application materials, including office location, permanent staffing plans, and contact information.

Meanwhile, applicants for licenses must meet minimum standards, including those regarding financial resources, risk management, information disclosure, and business activities. For example, applicants must possess sufficient financial resources and must maintain at all times a paid-in share capital of not less than HK$25 million or its approved equivalent. Applicants must submit relevant documents, including a three-year business plan and financial budget, audit reports for the past three fiscal years, and an anti-money laundering/counter-terrorist financing risk assessment report. Applicants' senior management and key personnel must possess relevant knowledge and experience and be based in Hong Kong to ensure effective management and oversight. The HKMA may interview the applicant's directors, CEO, and other personnel. Applicants must also develop and implement comprehensive risk management policies and procedures.

In terms of the public application process, applicants should first have an initial informal discussion with the HKMA to understand the licensing requirements and shorten the subsequent application processing time. Applicants are then required to submit a complete set of documents, including an application form, a three-year business plan and financial budget, articles of association, an organizational chart, and a risk management policy. If the applicant is approved, the HKMA will record the licensee's information and publish the effective date; otherwise, the HKMA will notify the applicant in writing and explain the reasons. Of course, applicants cannot publicly claim to have been licensed before their applications are approved. According to a July 18th announcement by Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, dozens of institutions have proactively contacted the HKMA team, some explicitly expressing interest in applying for a stablecoin license, while others are only exploring the process. Cobo's Chief Operating Officer, Lily Z. King, stated in an interview with Hong Kong 01 that the company is currently assisting approximately 50 to 60 potential clients with their applications for Hong Kong stablecoin licenses. Half of these clients are payment institutions, while the other half are well-known internet companies, most of which are Chinese-funded. However, it is expected that Hong Kong will only issue three to four licenses in the first phase, with a total of no more than ten. So far, several institutions have explicitly announced their applications for stablecoin licenses, including JD CoinChain Technology, Ant International, Standard Chartered Bank (Hong Kong), and Yuanbi Innovation Technology.