Hong Kong lawmakers have approved a bill to regulate stablecoins, a type of cryptocurrency linked to reserve assets like fiat currencies.

The legislation, passed by the Legislative Council on May 21, will take effect later this year.

It requires stablecoin issuers to obtain a license from the Hong Kong Monetary Authority (HKMA) before selling or promoting these digital assets.

HKMA chief Eddie Yue Wai-man said the regulatory framework aims to be risk-based, pragmatic, and flexible, focusing on public protection.

The HKMA will hold further consultations on key aspects such as reserve requirements, segregation of client assets, risk management, and disclosure practices.

🔗 Source: South China Morning Post

🧠 Food for thought

1️⃣ Hong Kong joins global regulatory divide with middle-path approach

Hong Kong’s “risk-based, pragmatic, and flexible” regulatory framework positions it between contrasting global approaches to stablecoin regulation.

While the EU’s Markets in Crypto-Assets Regulation (MiCA) imposes stringent restrictions including a ban on interest offerings and daily issuance caps, the US framework encourages innovation alongside consumer protection1.

This middle-path approach mirrors Hong Kong’s historical strategy of balancing regulation with innovation to maintain its status as a financial hub.

By requiring licensing while avoiding overly restrictive measures, Hong Kong may attract stablecoin issuers seeking regulatory clarity without excessive constraints.

The timing is significant as global stablecoin trading volume reached $27.6 trillion in 2024, surpassing the combined transaction volume of Visa and Mastercard, indicating substantial market potential2.

2️⃣ HKMA continues tradition of adaptive financial oversight

The stablecoin regulation represents the latest evolution in Hong Kong’s long history of adapting its regulatory approach to emerging financial technologies.

The Hong Kong Monetary Authority’s roots trace back to 1935 with the establishment of the Exchange Fund, which has continuously evolved its mandate, from initially backing banknote issuance to expanding in 1976 to manage fiscal reserves3.