The Stablecoins Bill gazetted on 6 December 2024, was passed by Hong Kong’s Legislative Council on 21 May 2025. The Ordinance marks the culmination of a 3+ years process that started on 12 January 2022, when the Hong Kong Monetary Authority (HKMA) published its first discussion paper on stablecoins.
The Ordinance could unintentionally stifle Hong Kong’s ambitions to be a global financial centre for digital assets.
In this article I explain why – and what needs to be done about it.
First, who could the new law have an adverse impact on? Here are a few that I can think of:
Family Offices
It’s no secret that Hong Kong is trying to grow its popularity as a base for family offices. It’s also increasingly common for family offices to allocate a portion of their assets to crypto. Many advisers today are telling family offices to allocate part of their portfolio to crypto.
In Hong Kong, most single family offices (SFOs) are not regulated, and are not required to be. Structuring a SFO to be exempt from licensing is a straightforward affair. Also, see paragraph 3 of this FAQ by the Hong Kong government which explains circumstances in which a SFO would not need to be licensed.
To balance their cryptocurrency portfolio, it is quite conceivable that family offices will need to sell stablecoins.
The Ordinance could prohibit family offices from disposing of their stablecoin holdings, or offering stablecoins as payment (e.g. to service providers).
Anyone Using Stablecoins for Global Trade Settlement
In a fractured world, many traders are turning to stablecoins as their means of settlement for trade transactions. I’ve found that many of them are choosing Hong Kong as their base for alternative settlement of global trade.
This could be a Latin American, Middle Eastern or Central Asian buyer of Chinese goods using Hong Kong as a trading centre, and using stablecoins for trade settlement. These are non-hypothetical scenarios.
If one side to the trade sells stablecoins received in payment, or offers stablecoins as payment, the Ordinance could make this unlawful.
Anyone Using Stablecoins for Payment
There are probably many other examples of completely legitimate uses for – and uses of – stablecoins. Stablecoins have been touted as a viable alternative system to the current SWIFT-dominated payments system, which is slow, expensive and subject to indiscriminate delays or rejection. Even MasterCard has announced it will enable stablecoin payments.
Why Regulate?
I understand why regulation of stablecoins is desirable.
For example, the JPEX scandal that blew up in late 2023 (in which we represented victims). In order to send stablecoins to JPEX, retail investors changed their hard-earned cash for stablecoins at one of the many unlicensed (or improperly-licensed) money-changing shops that dot Hong Kong. In the aftermath of the scandal and the AAX and Hounax ones that followed shortly after, regulators and legislators scrambled to deal with the fall out. The money-changers were seen as being a big part of the problem in facilitating the transfer of funds to JPEX.
It is also conceivable that stablecoins issued in Hong Kong, or linked to the Hong Kong dollar, might pose systemic risks to Hong Kong’s monetary system. There are a number of ways in which that risk might arise, including market volatility in HKD stablecoins becoming mirrored in the HKD, the risk of replacement/substitution of the HKD, and risks if a stablecoin issuer holds a large amount of HKD assets to back their stablecoins.
The use of cryptocurrency – including stablecoins – in money laundering and other unlawful activities is also common.
Hong Kong also wants to be a leading jurisdiction for fintech and digital assets. Having in place sensible regulations is an essential element of becoming a centre for digital finance.
All of the above are valid reasons to regulate.
The Problems with the Ordinance
The Ordinance starts by regulating “regulated stablecoin activity”. This means issuing a specified stablecoin in Hong Kong, issuing a stablecoin anywhere in the world referenced to the Hong Kong dollar, or any other activity that the HKMA gazettes. That’s fine. And no doubt the HKMA will act sensibly, as they always do, if gazetting any new activity for regulation.
Next, the Ordinance prohibits anyone but “permitted offerors” from offering specified stablecoins. A permitted offeror means a licensed stablecoin issuer, a bank, a licensed securities dealer (licensed for Type 1 regulated activity), a licensed crypto exchange or a payment systems/stored value facilities licensee. Only a permitted offeror may offer stablecoins. This is overly restrictive and problematic.
What does it mean to “offer” stablecoins? Section 6 of the Ordinance says that to offer specified stablecoin means to communicate in the course of business the stablecoin to be offered, the terms on which it is offered and the channel through which it is offered, so as to enable the other person to decide whether to “acquire” the stablecoin.
Even assuming Section 6 is exhaustive, in a real-world scenario, paying for goods or services using stablecoins could involve communications that meet the above definition of an “offer”.
For example, a communication that states (quite reasonably) that “for your invoice of US$10,000, I propose paying in USDT at a rate of USD 0.99 = USDT 1 plus a X% surcharge for offramp, payment to be made on the Solana chain to your wallet address XXX” could meet the definition of an “offer”. The person accepting the stablecoins in payment would be acquiring them in exchange for goods or services. Definition met, offence possibly committed if the payor (in stablecoin) is not a permitted offeror.
USDT and USDC together make up around 85% of global stablecoin value. They would be “specified stablecoins” for purposes of the Ordinance. They are commonly used in Hong Kong for the purposes I’ve described above. With the passing of the Ordinance, only permitted offerors (as defined) can offer (as defined, presumably exhaustively) them.
I appreciate that some strictures of the Ordinance can be modified by the HKMA’s decree, adapting to market circumstances. But in its current form, it would prohibit what are some of the most promising, legitimate and burgeoning use cases in Hong Kong for the most commonly-used stablecoins, to the detriment of Hong Kong’s ambitions.
How to Fix It
The fix is quite simple. If the intention is to regulate the sale of stablecoins in exchange for fiat (nationally-recognized) currency, then the Ordinance should make it clear this is what an “offer” means. The use of stablecoins to buy or pay for goods and services should not be prohibited.
For family offices and the like, the Ordinance should also allow dealings with professional investors, even if the offeror is not a permitted offeror. Family offices need to be able to sell their stablecoin holdings, even if they are not permitted offerors.
Do you see the same issues with the Stablecoins Ordinance? Or do you think it’s fine as it is? I’d love to hear your thoughts!
ADDENDUM: I was recently asked whether Multi-Family Offices (MFOs) would be affected by the Stablecoins Ordinance, or if they would be permitted to trade stablecoins.
It occurred to me that while MFOs are required to obtain a Type 9 (Asset Management) licence from the SFC, and some might also hold a Type 4 (Advising on Securities) licence, it is unlikely that many of them would hold a Type 1 (Dealing in Securities) licence.
MFOs that do not hold a Type 1 licence would not be “permitted offerors” and would face the same issues as SFOs, described above.
The impact of the Stablecoins Ordinance therefore extends across a larger swathe of family offices than my original article suggested, whether they be SFOs or MFOs.