Hong Kong's stablecoin regulation accelerates again: the licensing mechanism will come into effect in August, and preparations for the custody system will be promoted!

Hong Kong's regulatory framework for the virtual asset industry continues to evolve. Following the steady progress of the Stablecoin Bill, two key regulatory initiatives have recently been given clear timelines: the licensing regime for stablecoin operators will formally commence on 1 August, while preparatory work for the licensing system for virtual asset custodial services is accelerating, with public consultation slated to begin within 2025. This series of policy implementations and advancements signifies Hong Kong's progressive establishment of a comprehensive regulatory framework for stablecoins. This framework not only delineates compliance boundaries for the industry but also paves the way for market exploration of innovative applications, further solidifying Hong Kong's foundation as an international virtual asset hub.

The stablecoin licensing regime taking effect on 1 August constitutes the core component of the Stablecoin Ordinance's implementation. According to the relevant framework, the regime clarifies entry criteria, operational standards and regulatory requirements for stablecoin issuers, definitively resolving previously ambiguous regulatory boundaries within the sector. Notably, the regulatory approach does not merely impose restrictions but concurrently encourages market exploration of stablecoin applications in practical scenarios such as public affairs and cross-border payments. This orientation aligns with Hong Kong's positioning as an international financial centre while precisely addressing the market's core demand for the compliant application of stablecoins. For both local and international institutions, the licensing regime taking effect in August effectively issues a ‘licence to operate’. Only entities meeting stringent requirements—including registered capital, reserve asset custody, and anti-money laundering/counter-terrorist financing protocols—will qualify for issuance authorisation. This will propel the industry into a virtuous cycle of ‘survival of the fittest’.

From an industry development perspective, the implementation of the stablecoin licensing regime marks a pivotal turning point for Hong Kong's virtual asset sector, transitioning from ‘unregulated growth’ towards ‘regulated maturity’. Previously, while Hong Kong's virtual asset sector flourished rapidly due to its high financial freedom and internationalisation, regulatory ambiguities fostered persistent risk accumulation: non-compliant operations, opaque reserve assets, and inadequate investor protections. These issues not only eroded industry credibility but also hindered its integration into mainstream finance. The implementation of this licensing framework, by establishing clear regulatory boundaries and operational standards, will compel institutions to enhance their compliance capabilities, risk management, and disclosure practices. Those lacking sufficient qualifications or robust risk controls will be weeded out by the market, while well-capitalised institutions prioritising compliance will seize opportunities to further optimise the industry ecosystem.

Concurrently, the accelerated preparation of a licensing framework for virtual asset custody services fills a critical gap in the comprehensive regulatory chain for stablecoins. The core value of stablecoins lies in their ‘stability,’ which is highly dependent on the secure management of reserve assets. Custody services form the pivotal safeguard for the security of these reserves. Hong Kong's explicit commitment to launching public consultations on the custody framework by 2025 signifies regulators extending oversight from the ‘issuance end’ to the ‘asset custody end,’ thereby establishing a comprehensive regulatory system covering the entire ‘issuance-custody-circulation’ process. For the industry, the refinement of the custodial framework will bolster market confidence in compliant stablecoins: investors need no longer harbour concerns over reserve asset misappropriation or non-compliant management practices, while institutions can leverage compliant custodial services to enhance their credibility, thereby clearing obstacles for the widespread adoption of stablecoins.

Indeed, whether through the implementation of stablecoin licensing mechanisms or the preparation of custody frameworks, these measures ultimately serve the high-quality development of Hong Kong's financial markets. As a vital bridge connecting traditional finance with virtual assets, stablecoins possess inherent advantages including low cost, high efficiency, and cross-border convenience. With the introduction of compliant stablecoins and the expansion of their application scenarios, they are poised to play a significant role in areas such as cross-border trade financing, cross-border payments, and digital government fee payments. For instance, in cross-border payment scenarios, compliant stablecoins can substantially reduce settlement times, lower transaction fees, and enhance Hong Kong's payment efficiency as an international financial hub. Within the public affairs domain, the application of stablecoins can streamline administrative service processes and enhance the convenience of public services.