HONG KONG SAR, CHINA Law and Practice Contributed by: Pang Lee, Joyce Wang, Mark Liang and Francis Li, Cooley
This bespoke framework establishes a comprehen- sive licensing regime administered exclusively by the HKMA. It captures any person issuing an FRS in Hong Kong, issuing an HKD-referenced stablecoin any- where globally or actively marketing an FRS to the Hong Kong public. The framework is significantly more stringent than leg- acy payment regulations, as it imposes rigorous capi- tal requirements, continuous reporting obligations and strict limits on the types of institutions permitted to distribute the assets. Legally, only permitted offerors, namely licensed stablecoin issuers, authorised bank- ing institutions, SFC-licensed VATPs and licensed securities brokers, are allowed to offer specified sta- blecoins to the retail public in Hong Kong. 6.2.3 Backing Assets Targeting to significantly mitigate the risk of insol- vency and systemic runs, the HKMA imposes exact- ing requirements on backing assets for fiat-backed stablecoins. Licensed issuers must maintain eligible, highly liquid reserve assets whose value equals or exceeds the par value of the stablecoins in circula- tion at all times. The composition of these reserves is strictly limited to high-quality assets, predominantly fiat currency deposits and short-term sovereign debt denominated in the exact referenced currency. These backing assets must be fully segregated from the issuer’s proprietary funds and held in bankruptcy- remote structures. The HKMA strongly mandates that a licensed bank in Hong Kong acts as the primary cus- todian of these reserve assets to ensure immediate accessibility. Furthermore, to ensure the stablecoin functions strictly as a medium of exchange rather than a yield-bearing collective investment scheme, Section 15 of Schedule 2 to the Stablecoins Ordinance heav- ily restricts the ability of the issuer to pay interest or yield derived from the reserve assets directly to the stablecoin holders. 6.2.4 Special Considerations Stablecoin arrangements that achieve massive public adoption may pose unique macroeconomic threats to the jurisdiction. To address this, the HKMA is granted extraordinary statutory power under the Stablecoins Ordinance to designate specific stablecoin networks
as carrying “systemic risk”. This designation is based on factors such as aggregate transaction volume, the number of users and the stablecoin’s level of integra- tion into the broader domestic payment and settle- ment ecosystem. Systemic stablecoin issuers are subject to thorough regulatory oversight, most notably exemplified by their inclusion under the FIRO (Chapter 628). By bringing systemic stablecoins under the FIRO, the HKMA ensures that if a major issuer faces catastrophic fail- ure, the central bank can legally bypass traditional, protracted insolvency proceedings. The HKMA can assume direct operational control of the entity, enforce wind-down plans, execute bail-in mechanisms or exe- cute stabilisation options – eg, transferring the reserve assets and critical operations to a government-man- aged bridge institution – to immediately halt financial contagion and preserve the stability of broader Hong Kong financial markets. 7. Tokenisation and Real-World Assets 7.1 Treatment In Hong Kong, tokenised assets and RWAs are regu- lated using a strict look-through approach, comparing them directly with their non-blockchain equivalents. The SFC defines tokenised securities as traditional financial instruments (such as stocks, bonds or mutual fund units) that utilise DLT. The regulatory philosophy is that the utilisation of a blockchain wrapper does not fundamentally alter the economic substance or legal rights attached to the asset. Consequently, tokenised securities are expressly excluded from the definition of VAs under the AMLO and are instead fully governed by the traditional SFO. Issuers of tokenised RWAs like tokenised real estate funds or fractionalised equity must comply with the exact same prospectus requirements, continuous financial disclosures and professional investor restric- tions as traditional securities issuers. Intermediaries distributing or advising on tokenised RWAs must hold the corresponding Type 1 (Dealing) or Type 4 (Advis- ing) securities licences.
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