HONG KONG SAR, CHINA Law and Practice Contributed by: Pang Lee, Joyce Wang, Mark Liang and Francis Li, Cooley
unsecured creditors facing significant losses. To pro- tect clients from this outcome, SFC-licensed VATPs are mandated to implement strict asset segregation, utilise cold storage heavily and maintain specific liquid capital buffers. For digital asset firms carrying systemic macroeco- nomic weight, Hong Kong deploys a bespoke reso- lution regime governed by the Financial Institutions (Resolution) Ordinance (Chapter 628) (FIRO). With the full enactment of the Stablecoins Ordinance (Chapter 656) from August 2025, the HKMA is explicitly empow- ered to designate specific FRS issuers as systemic entities based on aggregate transaction volume and integration into the domestic payment ecosystem. If a systemic stablecoin issuer faces non-viability or catastrophic failure, the HKMA can legally bypass standard, protracted court-led liquidation procedures. The central bank can invoke FIRO to assume direct operational control of the entity, enforce bail-in mech- anisms, execute wind-down plans or orchestrate the compulsory transfer of reserve assets to a govern- ment-managed bridge institution. This extraordinary power ensures the continuity of critical financial infra- structure and actively prevents contagion. 1.2.6 Industry and Trade Bodies As detailed in 1.1.5 Industry and Trade Bodies , there are no statutory SROs representing the crypto-asset industry. The sector relies heavily on prominent trade associations, such as the Fintech Association of Hong Kong and the Bitcoin Association of Hong Kong, which play instrumental roles in policy advocacy, the formulation of industry-wide AML/CFT compliance standards and fostering vital collaboration between digital asset natives and traditional financial institu- tions. 2. Regulation 2.1 Regulators and International Alignment The primary regulatory bodies overseeing the block- chain and crypto-asset sectors in Hong Kong are the SFC and the HKMA. The SFC acts as the principal conduct and prudential regulator for the securities and futures markets. Its jurisdiction covers VATPs, VA fund
managers and intermediaries dealing in or advising on crypto-assets. The SFC’s supervisory approach emphasises robust investor protection, strict capi- tal adequacy, comprehensive risk management and the aggressive prevention of market abuse, enforcing these mandates through rigorous licensing gateways and ongoing monitoring. The HKMA serves as the central banking institution and prudential supervisor for authorised institutions. Its jurisdiction extends to the regulation of payment systems and FRS issuers under the Stablecoins Ordi- nance. The HKMA focuses intensely on preserving financial stability, dictating stringent reserve backing requirements and managing systemic macroeco- nomic risks associated with digital money. Addition- al relevant bodies include the Companies Registry, which administers Trust or Company Service Provider licences required for VA custodians, and the Customs and Excise Department, which oversees elements of AML/CFT enforcement. Regulators in Hong Kong have actively sought to align with and lead international regulatory approaches. The comprehensive AML/CFT framework for VAs was meticulously designed to achieve full compliance with the standards set by the Financial Action Task Force (FATF), including strict implementation of the Travel Rule for VATPs. The SFC’s expanded market abuse and investor protection frameworks draw heavily upon the policy recommendations formulated by the International Organization of Securities Commissions. Concurrently, the HKMA’s regulatory architecture for stablecoins directly reflects the prudential standards proposed by the bank for International Settlements regarding the treatment of digital money and the miti- gation of bank-run risks. 2.2 Crypto-Asset Regulatory Frameworks Crypto-assets are characterised and classified by reg- ulators primarily based on their economic substance and functional utility, employing a rigorous “substance over form” methodology. The principal classifications include: • security tokens (digital assets exhibiting character- istics of traditional securities, such as equity, debt or investment contracts);
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