Next Steps to Stability: HKMA Issues Draft Stablecoin Guidelines

Following the passing of the Stablecoins Bill late last month (see our previous alert), the HKMA has lost no time in publishing two consultations on guidelines for the new stablecoin regime; the Draft Guideline on Supervision of Licensed Stablecoin Issuers and the Proposed AML/CFT Requirements for Regulated Stablecoin Activities with the draft AML Guideline in an annex. The consultation period for both of these consultation documents is brief and concludes on 30 June 2025.

The draft Supervision Guideline does not introduce material new supervisory requirements or expectations as the licensing criteria for stablecoin issuers have been previously introduced and consulted on in earlier discussion and consultation papers from the HKMA and FSTB (see our 2024 client alert). This latest draft does, however, provide greater detail in most areas, and we have picked out some of the more noteworthy developments and clarifications from these consultations below. 

1. Stablecoin backing: A licensed issuer is required to ensure that all its specified stablecoins in circulation are fully backed, with appropriate over-collateralisation to cover market risk.  Specified stablecoins can be considered not part of the circulation if for example they are restricted from being accessed, transferred and redeemed by holders due to enforcement actions or court orders.  The licensed issuer does not need to maintain backing for such stablecoins but must ensure that backing is provided if the stablecoins subsequently return to circulation.
2. Acceptable reserve assets: Reserve assets can be:  (i) short term bank deposits (three months or less); (ii) high liquidity, short-term (one year or less) marketable debt securities issued by governments, central banks or certain public sector entities, in the domestic currency of the government or central bank (or qualifying for 0% credit risk weight pursuant to the banking capital rules); (iii) cash from overnight repos collateralised by assets set out in (ii); investment funds investing in assets set out in (i), (ii) and/or (iii); and/or such other assets acceptable to the HKMA. It is unclear whether reserve assets can be tokenised assets.
3. Denomination of reserve assets: Where specified stablecoins are issued in more than one referenced currency by a licensee, the reserve assets must be denominated in the relevant currencies in the same ratio as the reference currency of the issued stablecoins. A currency mismatch is only permitted if the licensed issuer can demonstrate a legitimate reason and implement appropriate risk management measures (for example over-collateralisation). An exception is made for HKD-referenced stablecoins which are permitted to maintain USD denominated reserve assets.
4. Reserve assets trust: The Draft Supervision Guideline sets out the requirements for a trust over the reserve assets, and for the custodian to be a licensed bank or otherwise acceptable to the HKMA.  The trust arrangements should facilitate the regular transfer of excess assets to the licensed issuer’s account, as any income or loss generated from management of the reserve assets should be attributed to the issuer.  The arrangements should consist of a trigger mechanism with detailed procedures to ensure only excess assets are transferred.
5. Specified stablecoins may not carry interest:  Clarification is provided on the meaning of interest, being any profit, income or other return from the holding of the stablecoin on the basis of: (i) the length of period of holding; (ii) the par value of the stablecoin; or (iii) the market value of the stablecoin. The payment of ‘marketing incentives’ will be permitted,  provided they do not amount to interest payments.
6. Issuing a stablecoin: Stablecoin issuers will be expected to onboard customers in order to issue the stablecoins to them, and customers should receive the stablecoins as soon as practicable after the issuer receives the customer funds. Funds should be paid in the same currency as the stablecoin references and the HKMA proposes that where there are several currencies referenced in a stablecoin, funds should be received from the customer in the same ratio.
7. Distribution: The Draft Supervision Guideline makes clear that stablecoin issuers must make sure any third-party distributors they use in Hong Kong are appropriately licensed as required in the Stablecoin legislation. The HKMA also expects licensed issuers to consider the laws and regulations of other jurisdictions where they wish to distribute stablecoins. As part of the customer onboarding process issuers should have policies and procedures in place to manage overseas offerings in compliance with local laws. The HKMA suggests managing the risks by checking customer IP addresses, managing the risks of location spoofing and monitoring for changes to local rules.
8. Redemption of stablecoins: Issuers may not charge unreasonable fees or apply burdensome conditions in connection with redemption requests made by stablecoin holders. The draft Supervision Guideline provides factors to determine what is an unreasonable fee, e.g., the proportionality of fees to operational costs for redemption, and what are burdensome conditions, e.g., are the requirements legal or regulatory or do they cause hardship to the stablecoin holder.
9. Paid-Up Share Capital: The minimum paid-up share capital is set at HKD25,000,000, however the HKMA can impose a higher level as a licensing condition. Note that this does not apply to stablecoin issuers who are Authorised Institutions, they will continue to follow the requirements under the Banking Ordinance.
10. The Proposed AML Guideline: This proposes measures in line with the Anti-Money Laundering and Counter-terrorist Financing Ordinance (AMLO) and covers risks which are specific to the stablecoin regime activities, for example issuing or ‘minting’ of stablecoins, the use of wallets (for example due diligence of institutions providing wallets, and additional controls where clients receive stablecoins into unhosted wallets), and client due diligence for stablecoin holders wishing to redeem stablecoins directly from a licensed stablecoin issuer. The Draft AML Guideline also proposes implementing the Travel Rule for stablecoin transfers, in line with the requirements for virtual asset transfers in AMLO.

As the stablecoin regime is intended to be implemented on 1 August 2025, we expect that further guidance on regulatory expectations, including details on the licensing procedure for stablecoin issuers, will be issued over the coming months.