The Hong Kong Stablecoins Ordinance Series #1: Understanding Stablecoins and the Regulated Stablecoin Activities

Against the background of the apparent and rising interconnectedness between the traditional financial system and the virtual asset market, as well as the potential monetary and financial stability risks associated with the increasing prevalence of stablecoins, following public consultation, the highly-anticipated Stablecoins Bill was gazetted on 6 December, which detailed the licensing and regulatory regime for certain fiat-referenced stablecoins (“Specified Stablecoins”) in Hong Kong.

The Stablecoins Ordinance (Cap. 656) (“Stablecoins Ordinance”) will come into effect on 1 August 2025.

The Stablecoins Ordinance presented important takeaways for the market players. Over the coming weeks, we will be publishing a series of newsletters that delve into various aspects of the Stablecoins Ordinance and share our practical considerations and insights on such regulatory developments. This first article will focus on understanding key concepts associated with the Stablecoins Ordinance and outlining the regulated activities and key restrictions pertaining to the Specified Stablecoins.
 

What is a “Specified Stablecoin”?

The term ”Specified Stablecoin” is defined as a cryptographically secured digital representation of value that, amidst other features, purports to maintain a stable value with reference to one or more official currencies (i.e. a currency issued by the government, central bank, monetary authority or an authorised note-issuing bank, of a relevant jurisdiction) or other units of account, stores of economic value or digital representation of value as to be specified by the Hong Kong Monetary Authority (“HKMA”) by notice published in the Gazette.

As a general observation, the drafting intention of such definition is to focus on fiat-referenced stablecoins in consideration of their higher potential to be developed into a widely accepted means of payment and incorporated into the mainstream financial system, while conferring wide discretionary powers for the HKMA to broaden the scope of “Specified Stablecoins”, so as not to lose sight of other stablecoins which reference other assets (e.g. commodities) and may become prevalent in the future.

Certain financial products and instruments that are already regulated, such as digital representations of value issued by a central bank or a government, limited purpose digital tokens defined under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615), securities or future contracts defined under the Securities and Futures Ordinance (Cap. 571) (“SFO”), as well as deposits respectively defined under the Payment Systems and Stored Value Facilities Ordinance (Cap. 584) (“PSSVFO”) or the Banking Ordinance (Cap. 155) (“BO”) shall be excluded from the ambit of the Stablecoins Ordinance. This is to prevent regulatory inconsistency and overlapping with existing regulations.
 

What constitutes a “regulated stablecoin activity”?

Any person carrying out any of the following regulated stablecoin activities must obtain from the HKMA a licence to do so unless a specific exemption is available:

1. Issuing a Specified Stablecoin in Hong Kong in the course of business;
2. Issuing a Specified Stablecoin that purports to maintain a stable value with reference to Hong Kong dollars in a place outside Hong Kong in the course of business;
3. Carrying on an activity specified by the HKMA pursuant to section 5(4) of the Stablecoins Ordinance; or
4. Actively marketing, whether in Hong Kong or elsewhere, to the public that the person carries on, or purports to carry on an activity that would constitute any of the activities described above if carried out in Hong Kong.

If you are an offshore entity, due regard must be given to (b) and (d) given their extra-territorial effect. Under the Stablecoins Ordinance, engaging in any regulated stablecoin activities without a requisite licence shall attract criminal liability.

What is the meaning of “Issuance” and “Active Marketing”?

The Stablecoins Ordinance is silent on the definitions of the key terms “issuance” and “active marketing”.

As explained in a Report of the Bills Committee on Stablecoins Bill dated 9 May 2025 (“Report”), the HKMA will take a holistic approach and consider all relevant factors including but not limited to where the day-to-day management and operations of the Specified Stablecoin issuer (“FRS Issuer”) take place, where the FRS Issuer is incorporated, where the minting and burning of the Specified Stablecoin take place, where the reserve assets are managed, and where the bank account for processing the cash flows arising from minting/redemption is maintained to determine whether “issuance” of a Specified Stablecoin took place in Hong Kong in the course of business. The question of what would qualify as an “issuance” activity is generally a matter to be decided on a case-by-case basis with respect to specific facts and circumstances and acknowledging the need for clarity, the HKMA would issue further guidance to the industry in due course.

Separately, the HKMA took reference from the Securities and Futures Commission (“SFC”)’s approach and as mentioned in the Report, it shall take into account multiple factors in determining whether a person is “actively marketing” an issuance of a Specified Stablecoin to the Hong Kong public, including but not limited to, the language used in the marketing messages, whether the message is targeted at a group of people that resides in Hong Kong and whether a Hong Kong domain name is used for its website.

We anticipate that with a possible objective to align its interpretation with section 115 of the SFO, guidelines or FAQs providing further guidance on the term “active marketing” shall be issued by the HKMA in due course. For example, the SFC’s FAQs provided that activities such as frequently calling on Hong Kong investors and running mass media campaigns including direct mailing, advertisements in local newspapers, broadcasting or other “push technology” aimed at the investing public in Hong Kong (as opposed to where the services are available on a “take it or leave it” basis), whether taking place in or outside Hong Kong, would constitute “active marketing”.

What shall be the activities specified by the HKMA pursuant to section 5(4) of the Stablecoins Ordinance?

To ensure a timely regulatory response by the HKMA, together with the discretionary powers conferred upon the HKMA under the aforementioned definition of “Specified Stablecoin”, the HKMA has discretion to designate any specific activity as a regulated stablecoin activity. In exercising such powers, the HKMA must consider, among others, the following factors: whether the activity is, or is likely to become, material to the monetary or financial stability of Hong Kong, and to the functioning of Hong Kong as an international financial centre, and whether matters of significant public interest are involved (collectively, “Materiality Factors”). Specifically, if the occurrence of any significant disruption to the carrying on of one activity is likely to adversely impact such Materiality Factors, such activity is likely to be designated by the HKMA as a regulated stablecoin activity.

Any restrictions on offering Specified Stablecoins?

In addition to the licensing requirements on regulated stablecoin activities, the Stablecoins Ordinance requires any person offering or holding out as offering Specified Stablecoins to be licensed, albeit there being a wider class of “permitted offerors” eligible to do so.

What is the meaning of “offering” and “holding out as offering”?

The term “offering” is defined as encompassing any communication (regardless of form or means) made by one person to another in the course of business that presents sufficient information on all of the following matters to enable that other person to decide whether to acquire the stablecoin from the person: (a) the stablecoin to be offered; (b) the terms on which the stablecoin will be offered; and (c) the channels through which the stablecoin will be offered.

A person shall be regarded as “holding out as offering” a Specified Stablecoin if that person (or another person on that person’s behalf) actively markets, whether in Hong Kong or elsewhere, to the public that he/she/it carries on, or purports to carry on an activity that, if carried on in Hong Kong, would constitute the offering of a Specified Stablecoin. Please refer to the above for the definition of “active marketing”.

Who are the “permitted offerors”?

Currently, unless exempted, only licensed FRS Issuers, SFC-licensed virtual asset trading platforms, corporations licensed by the SFC to carry out Type 1 (dealing in securities) regulated activity under section 116 of the SFO, authorised institutions as defined under the BO and stored value facility (“SVF”) licensees under the PSSVFO can offer a Specified Stablecoin or actively market such offering to the Hong Kong public.

It is interesting to note that SVF licensees were initially excluded from the list of permitted offerors proposed by the HKMA. The widening of the definition of permitted offerors is a positive turn of events to promote a potentially wider adoption of Specified Stablecoins, and we encourage market participants to continue monitoring any regulatory developments in this regard, specifically on whether other licensed and/or to be licensed entities with business activities that potentially overlap with certain stablecoin activities shall fall under the ambit of “permitted offerors” in the future.

Who can the “Specified Stablecoin” be offered to?

The summary table below demonstrates the three main scenarios of permitted offering of Specified Stablecoins in Hong Kong under the Stablecoins Ordinance:

For Scenario 2, while it is unclear from the Stablecoins Ordinance who would be designated as exempted persons, the HKMA has previously indicated that such exempted persons would generally be limited to professional investors as defined in the SFO.

Any restrictions on advertising Specified Stablecoins?

A person is prohibited from publishing, or having in possession for the purpose of publication (a) an advertisement, in which, to the person’s knowledge, the advertised person holds itself out as either carrying out a regulated stablecoin activity or offering a Specified Stablecoin, or (b) a document that, to the person’s knowledge, contains an advertisement described in (a), and (c) to the person’s knowledge, the advertised person is not licensed for the regulated stablecoin activity or permitted to do so or does not fall within an exemption. As the prohibition extends to advertisements of every form, market participants should exercise caution in publishing any materials in relation to Specified Stablecoins.

As we continue with this series, please stay tuned for future articles exploring other key aspects of the Stablecoins Ordinance, including but not limited to the licensing criteria, transitional arrangements and key functions and powers of the HKMA under the Stablecoins Ordinance, as well as the supervision and AML/CFT guidelines of FRS Issuers under consultation papers subsequently published by the HKMA.

If you have any questions on any information set out in this newsletter or requires advice on compliance-related issues, please get in touch with Joyce Chan or your usual Clyde & Co contact.