Hong Kong is set to implement one of the most stringent regulatory regimes in the digital asset space. From August 1, 2025, any individual or entity promoting or offering stablecoins without a license from the Hong Kong Monetary Authority (HKMA) will face criminal penalties, including fines of up to HK$50,000 (approximately $6,300) and imprisonment for up to six months.

The new law, known as the Stablecoins Ordinance, is widely viewed as a pivotal move to bring oversight and stability to the territory’s burgeoning digital asset sector. Passed by the Legislative Council in May, this ordinance specifically targets fiat-referenced stablecoins (FRS), ensuring that only regulated players with robust risk controls can operate in the market.

Key Details of the Ordinance

1. Effective Date: August 1, 2025

2. Regulator: Hong Kong Monetary Authority (HKMA)

3. Scope: Applies to all promotions, offerings, or facilitation of fiat-referenced stablecoins to retail investors in Hong Kong

4. Penalties for Violators: Fines up to HK$50,000 (~$6,300) and up to six months’ imprisonment

Offenses Covered

The legislation criminalizes a broad range of activities related to stablecoins:

1. Offering or issuing fiat-referenced stablecoins to the public without an HKMA license.

2. Advertising or promoting unlicensed stablecoins in any manner to Hong Kong’s retail market.

3. Facilitating transactions or providing services related to unlicensed stablecoins.

Both individuals and corporate entities are subject to these rules. The HKMA will also have the authority to impose administrative penalties, suspend or revoke licenses, and publicize sanctions for reputational impact.

Context and Rationale

The Stablecoins Ordinance follows a series of market incidents in which speculation around stablecoin launches and digital banking extensions led to dangerous volatility, most notably stock surges of up to 300% following announcements of digital asset integrations. The HKMA’s Chief Executive, Eddie Yue, underscored the urgency to “rein in the euphoria” that has led to substantial, often unfounded investor excitement. In issuing a public warning, the HKMA emphasized the risks unlicensed stablecoin products can pose, including fraud, manipulation, and instability. Retail investors were specifically urged to avoid unlicensed offerings and report suspicious activity.

Strict Licensing Regime

Hong Kong’s legislative approach sits among the world’s strictest, surpassing many international peers in penal scope. The new rules align the territory with frameworks such as the European Union’s MiCA regulation but stand out by introducing criminal penalties and requiring all retail market-facing stablecoins to be fully licensed. The ordinance introduces a comprehensive licensing regime for stablecoins:

1. Only applicants with detailed, realistic implementation plans, and sound risk management procedures will be considered for approval.

2. Stablecoin issuers must maintain full fiat reserves, provide transparent redemption mechanisms, segregate client funds, and implement anti-money laundering safeguards.

3. All stablecoins referencing the Hong Kong dollar, even if issued outside Hong Kong, require HKMA licensing.

Of the more than 50 companies that have expressed interest or applied for licenses, only a small number are expected to receive approval. Many proposals have been criticized for vagueness, lack of feasibility, or insufficient technical competence.

Implications for the Crypto Sector

The new regulatory environment is poised to reshape Hong Kong’s digital asset sector:

1. Investor Protection: Enhanced guardrails against fraud and speculative mania.

2. Market Transparency: Only well-vetted, licensed stablecoin products will reach retail investors.

3. Industry Challenges: High bar for licensing may stifle some innovation but will likely boost long-term industry credibility.

Entities or individuals contemplating entry into Hong Kong’s stablecoin market are urged to prioritize compliance and transparency or risk facing the full weight of the law as enforcement begins in August.