Carter Hoffman
May 28, 2025
Hong Kong has long prided itself on being a global financial hub, and last week it took steps to stake a claim on becoming a regulatory leader in the digital asset space as well.
On 21 May 2025, Hong Kong’s Legislative Council approved a new bill to establish a licensing regime for fiat-referenced stablecoin issuers. The bill, part of Hong Kong’s broader strategy to balance innovation in virtual assets, comes at a time when other jurisdictions are grappling with how to regulate stablecoins.
To help understand the importance of this bill, we will examine some of its key attributes, how those compare to similar legislation in other jurisdictions, and ultimately, what some of the potential implications might be for international trade.
Fiat-referenced stablecoins are digital tokens on a blockchain network that are pegged to fiat currencies, like the Hong Kong dollar (HKD) or the US dollar (USD). While stablecoins can bring a number of benefits, when unregulated, they can collapse (as was seen with the Terra Luna crash in May 2022) or threaten financial stability due to a lack of transparency. Neither of which can be considered very stable.
To bring stability to its stablecoins, the Hong Kong Monetary Authority’s (HKMA) new law requires any entity issuing a stablecoin token in Hong Kong or offering an HKD-pegged token anywhere globally to be licensed. According to the law, issuers must also maintain full reserve backing (i.e., 1:1), implement proper fund segregation to safeguard customer assets, and tokens must be redeemable at par under normal conditions, with a clear, functioning stabilisation mechanism behind the scenes.
Further, under the law, the same AML and CFT rules that apply to banks and payment firms now apply to stablecoin issuers who must also adhere to governance and risk standards, such as mandatory audits or transparent disclosures. The law also sets clear limits on public-facing activities. Only licensed firms can promote or sell fiat-backed stablecoins to retail users, and marketing by unlicensed issuers is explicitly banned to avoid the speculative marketing blitzes that have plagued earlier crypto cycles.
The HKMA is firmly responsible for enforcing these regulations. The regulator is empowered to issue, suspend, or revoke licences and investigate non-compliance. A Stablecoin Review Tribunal has been established to hear appeals, with the right to escalate matters to the Court of Appeal if needed.
Implementation is slated for late 2025, with a brief grace period to allow existing players time to adapt. A six-month transition window will give firms space to align with the requirements, while a shorter three-month application window ensures a compact licensing pipeline. Importantly, the ad ban for unlicensed issuers applies from day one.
Consultations are expected to continue as the HKMA defines the finer details.
Hong Kong’s foray into stablecoin regulation is occurring amid intensifying global regulatory efforts.
The European Union, for example, has taken a lead in codifying crypto-asset regulation through its Markets in Crypto-Assets (MiCA) regulation, which was approved in 2023 and began phasing in at the end of 2024. MiCA is one of the most comprehensive frameworks, covering not only stablecoins but a broad range of digital assets and services.
Under MiCA, stablecoins (termed “asset-referenced tokens” or “e-money tokens” depending on their design) are subject to rigorous oversight. Stablecoin issuers in the EU must obtain regulatory authorisation and maintain sufficiently liquid reserves at a 1:1 ratio to the value of outstanding coins, with a portion of reserves held in deposits. They are required to offer redemption at any time at par value, much like Hong Kong’s law, and to provide regular audits and disclosures on reserves. MiCA also imposes capital and governance requirements on issuers and subjects them to ongoing supervision by European regulators, principally the European Banking Authority (EBA) for stablecoins, with input from the European Securities and Markets Authority (ESMA).
One notable aspect of MiCA is its breadth of scope. MiCA applies to crypto-asset service providers operating in the EU regardless of where they are based. In effect, an overseas stablecoin provider must comply with MiCA if it markets to EU customers, similar to Hong Kong’s rule that targeting Hong Kong dollars triggers the licence requirement. While Hong Kong’s framework focuses specifically on fiat-pegged stablecoins referencing the Hong Kong dollar or issued in Hong Kong, the EU framework casts a wider net across various tokens and currencies within its single market.
In the United States, stablecoin regulation has been a subject of active debate, but as of mid-2025 there is not yet a comprehensive federal law in force. Instead, there are proposed bills and a patchwork of state-level oversight. Two prominent bipartisan proposals in Congress are the Guiding and Establishing National Innovation for Unified Stablecoins Act (GENIUS Act) and the Stablecoin Transparency and Accountability for a Better Ledger Economy Act (STABLE Act). Both bills seek to create a federal framework for payment stablecoins, albeit with some differences in approach.
The GENIUS Act aims to require any USD-pegged stablecoin issuer to hold reserves backing each coin on at least a 1:1 basis in high-quality assets (similar to Hong Kong’s 100% reserve rule). The STABLE Act proposal is somewhat more accommodating of foreign issuers and allows smaller domestic issuers to continue under state oversight rather than a federal license.
However, these bills remain proposals and have not been enacted as law. In the interim, US stablecoin issuers operate under a mix of state regulations (for example, New York’s Department of Financial Services has issued stablecoin guidance on reserve quality and monthly attestations) and self-imposed transparency practices. It is expected that the US will eventually implement some form of federal stablecoin law, which will likely resemble Hong Kong’s and the EU’s approaches in requiring licences, prudent reserve management, and compliance with financial crimes laws.
United Kingdom authorities are also developing rules for stablecoins. In early 2025, the UK’s Financial Conduct Authority and Bank of England outlined proposals to regulate fiat-backed stablecoins as part of the existing payments and e-money framework. The UK plans to require issuers to back coins with central bank reserves on a 1:1 basis.
Meanwhile, jurisdictions like Singapore have issued guidelines for stablecoin issuers (the Monetary Authority of Singapore in late 2022 proposed requirements for reserve quality, audits, and redemption timelines for stablecoins), and Japan has legalised the issuance of stablecoins by licensed banks and remittance companies effective 2023, with strict asset-back and redemption rules.
Hong Kong’s Stablecoins Bill is very much in keeping with international regulatory trends. It mirrors the key pillars found in EU, US, and UK regulatory thinking (i.e., authorisation of issuers, 1:1 reserve backing in safe assets, redemption on demand, audits and disclosures, and AML/CFT controls). What sets Hong Kong apart is the speed at which it has enacted a dedicated stablecoin law, placing itself among the first jurisdictions to implement a comprehensive stablecoin licensing regime.
Professor Sarah Green, Head of Digital Assets and Trade Finance at D2 Legal Technology, told TTP, “Hong Kong’s latest legislative initiative is a valuable and welcome piece in the global jigsaw of stablecoin regulation. It has much in common with those other pieces, which makes it all the more effective.”
Stablecoins have grown from a niche cryptocurrency concept to a significant element of the digital economy. In 2024, stablecoins registered over $25.8 trillion in aggregated trading volume, according to research from CEX.io, a crypto exchange. This reportedly exceeds the combined volume of Visa and Mastercard transactions for that year.
While much of this volume comes from crypto market trading, it shows the sheer scale and liquidity of stablecoins that could be harnessed for mainstream trade and payments. The emergence of clear regulatory frameworks, like Hong Kong’s new regime, is likely to accelerate the use of fiat-referenced stablecoins in cross-border transactions by providing the legal certainty and safeguards that large institutions and corporate treasurers require.
André Casterman, founder and managing director of Casterman Advisory, told TTP, “Regulated stablecoins will make it easier for trade originators to move money around the world, and more. It has the potential to become the most attractive innovation for the trade finance market.”
This will have some key implications for the global trade and payments industries.
International trade and remittances are often expensive, slow, and opaque. Properly regulated stablecoins, however, offer a compelling alternative. Backed by the efficiency of blockchain technology, stablecoins can enable near real-time value transfer across borders 24/7 without intermediaries. The cost of transferring funds via stablecoins can be a fraction of conventional correspondent banking fees.
For example, a business in Hong Kong could settle an invoice with a partner in Europe by sending a USD-pegged stablecoin, which the recipient can instantly convert or hold, without the usual bank wire delays. This is particularly attractive for global supply chains and trade finance, where delays and uncertainty in payment can disrupt the flow of goods.
Stablecoins can enable atomic settlement, meaning payment versus delivery can occur simultaneously across linked transactions. In a cross-border trade context, this could revolutionise transaction execution.
Consider a scenario of a delivery-versus-payment (DvP) arrangement for a cargo shipment. Funds (in stablecoins) held in escrow could be programmed to release to the exporter at the exact moment the title documents or goods are delivered to the importer, all recorded on a blockchain.
By legitimising and supervising stablecoin issuers, stablecoin frameworks like the one in Hong Kong can make stablecoins a reliable medium for trade settlement or supply chain financing, giving fintech platforms confidence to develop innovative DvP solutions.
A major barrier to the wider adoption of stablecoins in corporate payments has been a wariness among banks and institutional investors around using stablecoins, given the possible doubt about the issuer’s solvency or the legal status of the tokens.
Regimes like Hong Kong’s will help address these worries by enforcing strict reserve audits and authorising only fit and proper issuers. This could make it easier for banks, payment processors, and large corporates to integrate stablecoins into their cross-border payment workflows.
For instance, a multinational company might use HK-regulated HKD or USD stablecoins to send funds more efficiently between international subsidiaries. Since Hong Kong’s rules mandate full AML/CFT compliance, stablecoin transactions under this regime can be woven into the global financial system without becoming a loophole for illicit flows.
This may increase the comfort level of regulators in other countries in accepting or facilitating transactions coming from Hong Kong-licensed stablecoin arrangements, thereby opening the door for stablecoins to be used in legitimate global commerce.
Despite their potential, fiat-referenced stablecoins will also face certain limitations in cross-border usage under these new regulations.
One issue is jurisdictional interoperability. A stablecoin licensed in Hong Kong (pegged to HKD, for example) may not automatically be approved for use in, say, the EU unless it meets MiCA requirements, or in the US unless it fits within whatever regulatory scheme is in place there. This could fragment stablecoin markets along national lines.
The Hong Kong law’s focus on Hong Kong dollar-referenced stablecoins means its immediate cross-border impact may be most felt in trades involving HKD or where Hong Kong plays a financial intermediary role. Over time, as more jurisdictions roll out compatible regulations, we may see networks of regulated stablecoins that interoperate, but getting international regulatory harmony is a work in progress.
Another potential limitation is that regulators (including HKMA) may impose caps or restrictions on certain stablecoin activities to guard against systemic risks. For example, if stablecoins become too popular for remittances, authorities might watch capital flow effects, especially in countries with strict currency controls.
Hong Kong’s framework was designed in part to pre-empt risks to financial stability, meaning HKMA will likely monitor the scale of stablecoin circulation and could intervene if any stablecoin (or the aggregate market) grows in a way that threatens monetary policy or financial system liquidity. For global trade, this means that while stablecoins can aid commerce, they will be allowed to do so only up to a point that regulators are comfortable with.
Hong Kong’s new stablecoins bill provides guidance for stablecoin issuers and offers much-needed clarity in a domain that has often been likened to the Wild West.
By comparing Hong Kong’s framework with those in the EU, US, and elsewhere, we see a converging global consensus that stablecoins must be as safe and sound as the traditional money they reference. For trade and payments professionals, this convergence is a welcome development and means the tools of tomorrow’s finance (like blockchain-based stablecoins) can be used with greater confidence and security across borders.
As stablecoins become more embedded in cross-border transactions, the importance of robust regulatory frameworks will only grow. Hong Kong has shown that it is possible to foster innovation in fintech while upholding financial stability and consumer protection.
Trade and payments professionals should interpret this as a sign that Hong Kong is open for digital asset business, but on its own terms. The city is inviting innovation in areas like tokenised deposits, digital securities, and blockchain-based trade finance, on the condition that these innovations fit within a robust regulatory guardrail. This approach may well become a blueprint for other jurisdictions that wish to enable the benefits of fintech while protecting against its downsides.
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