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

The Hong Kong Monetary Authority recently released a series of supporting regulatory documents for the Stablecoin Ordinance. These documents not only provide a clear application path and compliance standards for the stablecoin market, but also demonstrate Hong Kong's commitment to strengthening risk prevention and control while leaving policy space for the innovative development of stablecoins. This article will review the key points of the relevant stablecoin guidance policies and provide an in-depth analysis of the regulatory requirements and practical approaches.

By Nancy, PANews

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

As the Stablecoin Ordinance will officially come into effect on August 1, 2025, the Hong Kong Monetary Authority simultaneously released a series of supporting regulatory documents on July 29, including the "Guidelines for the Supervision of Licensed Stablecoin Issuers", the "Guidelines on Combating Money Laundering and Terrorist Financing (Applicable to Licensed Stablecoin Issuers)", and the "Summary of the Licensing Regime for Stablecoin Issuers", etc., to build a full-process regulatory framework covering application, operation, asset management and anti-money laundering compliance.

This set of guidelines not only provides a clear application path and compliance standards for the stablecoin market, but also demonstrates 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 analysis of regulatory requirements and practical approaches.

The first batch of stablecoin licenses will be announced early next year, and companies that fail to apply must exit their businesses by November.

"Licensing will be an ongoing process. If individual institutions believe they are fully prepared and wish to be considered as soon as possible, they should submit an application to the Hong Kong Monetary Authority before September 30," the Hong Kong Monetary Authority said.

The HKMA has not yet issued any licenses. It expects to announce the first batch of licensed stablecoin issuers as early as early 2026, with a focus on cross-border trade and Web3 applications. Only a few licenses will be issued in the initial phase, with a high qualification threshold. Priority will be given to applications submitted before September 30th. 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 stablecoin issuers that already have meaningful and substantive operations in Hong Kong, including issuing temporary licenses to issuers capable of complying with regulatory requirements. Within the first three months after the Stablecoin Ordinance comes into effect (i.e., before October 31, 2025), existing issuers interested in applying for a license will need to 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 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.

Implement KYC rules and consider setting higher regulatory thresholds in the future

In terms of 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 banking institutions, 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 be regularly disclosed. Furthermore, licensees must 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 create a safe and compliant environment for the Hong Kong stablecoin market, the HKMA has issued the "Guidelines on Combating Money Laundering and Counter-Terrorist Financing (Applicable to Licensed Stablecoin Issuers)", which clearly defines anti-money laundering regulatory requirements, including risk assessment, customer due diligence, ongoing monitoring, stablecoin transfer compliance, and suspicious transaction reporting. Specifically, in ongoing monitoring, the HKMA requires licensed stablecoin issuers to take effective measures to identify and verify the identities of stablecoin holders. Customers must undergo a complete customer due diligence (CDD) process and conduct regular reviews (such as 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, when monitoring discovers wallet addresses associated with illegal activities, sanctions lists, or suspicious sources, and the licensee cannot demonstrate that its risk mitigation measures (such as blockchain analysis tools) are sufficient to prevent ML/TF risks, the licensee must conduct further investigations and verify the identities of the relevant holders.

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

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

Requires full reserve asset support and can issue multi-currency stablecoins

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 principle, applying differentiated risk mitigation requirements based on the type and structure of the 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. However, any 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 approval on a case-by-case basis and reasonable justification.

In addition, the HKMA requires licensees not to pay interest on the stablecoins they issue, does not restrict the offshore custody of reserve assets, and allows entrusting third-party investment managers to manage assets, provided that the licensees ensure the transparency, security and dispatchability of assets, 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. While the Stablecoin Regulations require redemption requests to be processed within one business day, this timeframe applies only after the holder has completed all required requirements (such as identity verification and fund path confirmation). Preliminary compliance review time is not included in this processing timeframe.

It is worth noting that the HKMA does not require stablecoin issuers to set up a market maker mechanism, but if relevant arrangements are established, potential conflicts of interest and market manipulation risks must be guarded against.

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, regarding VPN access to related services, regulators adhere to a risk-based approach and avoid blanket technical restrictions.

Applicants must maintain a paid-in capital of no less than HK$25 million and must establish a local office in Hong Kong

Any institution intending to engage in stablecoin issuance and related business 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 either a company incorporated in Hong Kong or an authorized institution incorporated outside 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 staff plans, and contact information.

At the same time, applicants for licenses must meet minimum standards, including financial resources, risk management, information disclosure, and business activities. For example, applicants must have sufficient financial resources and must always maintain a paid-in capital of no less than HK$25 million or approved equivalent financial resources; applicants must submit relevant documents, including business plans and financial budgets for the next three years, audit reports for the past three fiscal years, anti-money laundering/anti-terrorist financing risk assessment reports, and other relevant documents; applicants' senior management and key personnel must have relevant knowledge and experience and be based in Hong Kong to ensure effective management and supervision. The HKMA may interview the applicant's directors, CEO, etc.; applicants must formulate and implement comprehensive risk management policies and procedures.

Regarding 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 announce that they have been licensed before their application is approved.

According to a July 18th statement from Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, dozens of institutions have approached the HKMA team, some expressing explicit interest in applying for stablecoin licenses, while others are only exploring the process. Cobo's Chief Operating Officer, Lily Z. King, also told Hong Kong 01 in an interview 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.

As of now, many institutions have clearly announced their applications for stablecoin licenses, including JD Coin Chain Technology, Ant International, Standard Chartered Bank (Hong Kong), Yuanbi Innovation Technology, etc.

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