Hong Kong’s new stablecoin law is likely to spark interest from large banks and technology companies looking to become issuers, as the bill paves the way for lenders to explore new revenue streams.
Hong Kong on August 1 became a regulated market for stablecoins, a type of cryptocurrency token designed to maintain a constant value and usually pegged to a fiat currency such as the US dollar, allowing money to be moved using blockchain networks.
A stablecoin issuer typically accepts the fiat currency the token is pegged to in return for stablecoins. The issuer will then use the fiat currency to make other investments in highly rated securities such as US Treasuries.
The Hong Kong Monetary Authority, the city’s de facto central bank, is accepting applications for stablecoin issuer licences until the end of September. As of now, no licences have been issued, and officials have stated publicly that only a handful will be granted.
Soon after the bill went into effect, Anchorpoint Financial, a joint venture between Standard Chartered Bank, software and venture capital company Animoca Brands and Hong Kong Telecom, said it planned to apply for a stablecoin licence. According to Standard Chartered, the aim of the JV is to "build a business model focused on the issuance and advancement of licensed stablecoins".
Anchorpoint earlier participated in HKMA’s stablecoin issuer “sandbox”. The sandbox, launched in March 2024, allowed institutions with plans to issue stablecoins to conduct testing on their operational plans, and also facilitated two-way communications on the proposed regulatory requirements.
In a joint statement on Thursday, Hong Kong's Securities and Futures Commission and the HKMA noted "recent abrupt market movements linked to the stablecoin concept", following speculation regarding issuer licences, including claims of recent engagements with financial regulatory authorities in Hong Kong.
Shares of Hong Kong-listed Chinese conglomerate Fosun International jumped more than 13% on Tuesday after reports that chairman Guo Guangchang had met with Hong Kong chief executive John Lee and finance secretary Paul Chan to discuss a stablecoin licence.
"The HKMA reiterates that it adopts a robust and prudent approach, with a reasonably high bar, in considering applications for stablecoin issuer licence[s]. The HKMA emphasises that an indication of interest or application for a stablecoin licence, and the HKMA’s communication with the interested entities are just part of the licensing process," the regulators said in the statement, adding that licensing criteria needed to be fulfilled.
“The rulebook is bank-grade, so scale and compliance matter. This favours well-capitalised incumbents with distribution. Scarce licences make a bank-issued stablecoin a prestige asset. Early movers will shape liquidity norms and cross-border settlement,” said Kher Sheng Lee, co-head of Asia Pacific at the Alternative Investment Management Association. AIMA is the global industry group for alternative investment managers, spanning hedge funds, private credit and digital assets.
The HKMA's ordinance covers fiat-referenced stablecoins. Jingdong Coinlink Technology Hong Kong, a subsidiary of China's JD Technology Group, and RD Innotech, a stablecoin-focused fintech backed by Chinese venture capital firms, also participated in HKMA’s sandbox and have said they plan to issue stablecoins linked to the Hong Kong dollar if they receive licences.
"Holy grail"
However, observers say the regime could also serve as a testing field for stablecoins pegged to the offshore renminbi.
“CNH stablecoins are the holy grail – a logical next step, but unlikely in the first wave. The framework provides the rails, but mainland policy alignment, liquidity and bank-grade sponsors are needed. Hong Kong is the perfect staging ground – where policy meets plumbing and pilots become markets,” AIMA’s Lee said.
S&P says banks in Hong Kong could face more digital competition in the payment business as the city opens its market to stablecoin issuance. Additionally, the opening could enhance banks' wealth management services and potentially attract more customers from mainland China.
Besides becoming issuers, banks are likely to participate in Hong Kong’s stablecoin ecosystem in other ways. S&P says custodial services are likely to present an opportunity for Hong Kong banks. The bill mandates that tokens be fully backed by “high-quality, liquid reserve assets”, and by offering custody solutions, Hong Kong banks can manage these reserves and generate fee-based income.
Additionally, Hong Kong’s status as a cross-border wealth management hub means that banks also stand to gain on the wealth management front.
“By offering stablecoin-linked products or digital assets, Hong Kong banks may, for example, attract affluent customers from mainland China seeking offshore crypto exposures – opportunities that are typically inaccessible across the border,” S&P’s Phyllis Liu wrote in a note.
Technology companies are likely to get involved to explore e-commerce opportunities.
Limited use cases
However, experts agree the rules limit use cases for Hong Kong’s stablecoins and they are likely to be primarily used for cross-border trade payments and remittances. And while instant settlement with much lower charges than traditional electronic payments mean stablecoins are attractive for businesses, regulations are at different stages of development in different countries that could limit their acceptance globally.
"Stablecoins will enhance the payment services and payment solutions offered by banks in Hong Kong," said Sara Or, a Hong Kong-based partner at law firm Johnson Stokes & Master. "As a start, banks may offer stablecoin payment solutions for B2B payments with the advantages of reduced transaction cost, accelerated settlement time and simplified procedures, compared to conventional cash settlement."
The use case for retail consumers remains low as retail transaction settlement in Hong Kong is already instant and consumers incur no direct costs. S&P estimates that less than 5% of stablecoin transactions across the world are used for retail payments.
AIMA’s Lee agreed, saying he expects a B2B focus, especially given the strict know-your-customer rules for Hong Kong’s stablecoins. HKMA’s KYC rules for stablecoins require issuers to verify the identity of every stablecoin holder. The HKMA has also issued detailed guidelines for the supervision of licensed stablecoin issuers and norms on anti-money laundering and counter-financing of terrorism.
"There are observations that the Hong Kong stablecoin regime is more stringent compared to the regimes in other jurisdictions, including the US, EU and Singapore," said JSM's Or.
"The Hong Kong regime reflects HKMA’s approach to regulating stablecoin businesses, starting with stricter regulations to ensure sound operation and making adjustment with practical experience in time, while recognising the need to balance and allow suitable room for business innovation."
Besides navigating strict regulations, participants are waiting to see how the issuance and use of stablecoins pans out in the city, considering the continuous investment in technology and compliance infrastructure required from issuers.
“Execution, not regulation, will make or break outcomes. A peg is only as strong as the operational plumbing – any slippage in settlement speed, cybersecurity, reserve strength or redemption discipline will test confidence instantly,” AIMA’s Lee said.