Written by: Bai Qin, Head of Hong Kong Office at Shanghai Mankun Law Firm;
Huang Wenjing, Legal Assistant at Mankun (Shenzhen) Law Firm
Introduction
The passage of the "Hong Kong Stablecoin Regulation" in the Hong Kong Legislative Council on May 21, 2025, marks a critical turning point in regulation. The regulation was gazetted on May 30, 2025, and is set to take effect on August 1, 2025. Fiat-referenced Stablecoins (FRS) in Hong Kong, issued from outside Hong Kong, or involving Hong Kong dollars, are no longer in the gray area of crypto finance but are now incorporated into a formal, institutionally regulated legal framework. The regulation reflects an intentional recalibration: it aims to position Hong Kong as a compliant, forward-looking virtual asset hub capable of carrying the next generation of programmable finance within a rule of law framework. This article analyzes the regulation's key provisions, strategic positioning, practical impact, and clarifies its differences from related technologies such as Real World Asset (RWA) tokenization.
[The rest of the translation continues in the same manner, maintaining the original structure and translating all text except for the content within XML tags.]Intersection with Bank Regulation: Capital requirements, reserve isolation, "fit and proper" standards, and other regulatory requirements similar to traditional deposit institutions blur the boundaries between token issuers and traditional financial intermediaries.
This strategic difference reflects Hong Kong's priority on stability and fiat anchoring, rather than purely pursuing market growth or issuer flexibility.
Tokenization of Real-World Assets: Key Distinction
A common misconception is that stablecoin compliance implies indirect recognition of RWA. This is not the case. The regulation does not provide a direct path or legal recognition for RWA projects.
Stablecoins operate within the fiat framework, while RWA involves incorporating domestic assets (such as real estate, stocks, bonds) into token form. The regulation emphasizes that RWA still has regulatory gaps, with key challenges including:
Cross-border Asset Transfer: Tokenizing assets located in mainland China involves foreign exchange controls, securities regulations, and capital account supervision.
QFII Restrictions: Unless obtaining QFII/RQFII permits through traditional channels, domestic assets cannot be cross-border tokenized.
Stablecoin License ≠ RWA Legality: Obtaining an FRS permit does not equate to legally conducting RWA business, especially for illiquid, unverified, or "firewall" assets.
RWA projects must address their independent legal challenges. Stablecoins can serve as payment or collateral tools in the RWA ecosystem but cannot resolve the core legal issues of cross-border asset circulation.
Practical Impact and Industry Adjustment
The new regulations will fundamentally change how virtual asset companies operate in Hong Kong. Both issuers and investors must re-examine their strategies, partners, and legal risks:
Issuers: The era of rapid product launch is over. Stablecoin issuance requires robust financial governance, genuine monetary support, and clear legal responsibilities. The HK$25 million capital requirement, audit fees, reserve checks, and real-time redemption systems significantly raise the threshold. Unlicensed issuance is no longer a "risk" but a criminal offense.
Banks and Trust Institutions: They can naturally become reserve custodians, compliance verifiers, and risk managers, potentially developing services like stablecoin treasury management and KYC support, but will need to upgrade systems to support tokenized transactions and assess legal liabilities.
Investors: Enhanced protection with reduced choices. Mandatory redemption rights and reserve isolation increase investment confidence. While stablecoin options may initially decrease, in the long term, it will be easier to identify truly compliant, fiat-backed stablecoins.
Global Platforms: They can no longer "incidentally" provide stablecoins to Hong Kong. Under the new rules, they must establish dedicated compliance strategies. Unlike the EU's MiCA passport system, Hong Kong does not recognize external licenses. Promoting to Hong Kong users or offering asset basket-anchored tokens may likely violate advertising laws.
Developers and DeFi Builders: Technology cannot supersede law. Any protocol development interacting with fiat stablecoins must prioritize compliance from the start, embedding stablecoin issuer status verification systems.
Conclusion
Hong Kong's stablecoin regulation is a deliberate strategic choice: integrating crypto finance into an institutional accountability system. By integrating licensing, regulation, and enforcement into a unified framework, Hong Kong sends a clear signal to the global market: digital finance must operate under the rule of law. Market participants should prepare for rigorous audits, reserve checks, and ongoing regulatory dialogue. Those who adapt will not only survive but shape the future of compliant digital finance in Asia.
However, deeper questions remain: Can programmable money thrive in a rule-of-law economy? Can decentralized technology coexist with centralized regulation? Can crypto innovation win public trust without executable redemption rights and institutional accountability? These challenges are further amplified by unresolved fissures: how to balance AML/CFT regulation while retaining anonymity features; and how mainland capital controls interact with Hong Kong stablecoin cross-border circulation or mainland asset tokenization.
These tensions reinforce Hong Kong's core proposition: the key to financial evolution is not speed, but sovereignty, stability, and systemic integrity. Only regulation can build trust where technology cannot self-prove trust. Without trust, innovation will ultimately fail.
