LCQ10: Regulation of digital assets
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Question:
Since the Stablecoins Ordinance (Cap. 656) (the Ordinance) came into effect on the first of last month, non-permitted offerors have been prohibited from offering stablecoins to retail or professional investors. However, it has been reported that as virtual asset over-the-counter (OTC) trading institutions (including money changers) are currently not classified as permitted offerors under the Ordinance, some OTC trading institutions can take advantage of the grey areas of the Ordinance, such as through passive trading or customer-initiated quotes, to continue operation while circumventing the Ordinance, hence posing risks to investors and increasing industry uncertainty. In this connection, will the Government inform this Council:
(1) of the current measures in place to prevent, address, and regulate the aforesaid circumvention of the Ordinance by non-permitted offerors; whether it will release specific guidelines or examples to further clarify what constitute transactions or operational activities that are not explicitly defined in the Ordinance;
(2) as it has been reported that under the current regulatory framework, retail investors may switch to trading on offshore platforms not regulated by the Ordinance or using P2P transactions, hence subjecting them to higher investment risks, how the Government will strike a balance between strict regulation and market demand, including improving the regulatory regime, expediting licensing approvals, strengthening investor education, and broadening the scope of tradable assets (e.g. compliant stablecoins), to protect the interests of retail investors; and
(3) given that the Government issued a consultation paper in June this year on legislative proposals for regulating digital asset dealing and custodian services, of the progress of the establishment of the licensing regime and the legislative timetable; if there is a legislative timetable, of the details; if not, the reasons for that?
Reply:
President,
The Stablecoins Ordinance (Cap. 656) (Ordinance) came into effect on August 1, 2025. One of its purposes is to regulate the issue of specified stablecoins and impose restrictions on the persons who may offer specified stablecoins, with a view to protecting holders and potential holders of specified stablecoins.
After consultation with the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC), the reply to the various parts of the question is as follows:
(1) Under section 9 of the Ordinance, currently only "permitted offerors" may offer specified stablecoins. At present, the Ordinance specifies five types of "permitted offerors", namely (1) licensed stablecoin issuers; (2) virtual asset service providers licensed by the SFC; (3) persons with a stored value facility licence; (4) corporations licensed by the SFC to conduct Type 1 regulated activities; and (5) authorised institutions. "Permitted offerors" may offer stablecoins issued by licensed issuers regulated by the HKMA (i.e. regulated stablecoins) to both retail and professional investors; however, unregulated stablecoins may only be offered to professional investors (as defined in section 1 of Part 1 of Schedule 1 to the Securities and Futures Ordinance (Cap. 571)).
Virtual asset over-the-counter (OTC) trading institutions are not "permitted offerors" under the Ordinance, and therefore cannot offer specified stablecoins to retail or professional investors, regardless of whether such stablecoins are regulated.
During the initial implementation of the Ordinance, the HKMA will step up publicity efforts to enhance the industry's understanding of the Ordinance and promote the industry's compliance with its relevant requirements. At the same time, the HKMA will monitor transactions involving stablecoin in the market. If a suspected contravention of the Ordinance is identified, the HKMA will consider follow-up action based on the relevant facts and evidence.
(2) As mentioned above, under the Ordinance, currently only "permitted offerors" are permitted to offer specified stablecoins. Members of the public must note that the HKMA has not licensed any stablecoin issuer yet. While the Ordinance offers protection to members of the public who purchase regulated stablecoins from "permitted offerors" as specified in the Ordinance, members of the public who acquire stablecoins through unregulated channels or acquire any unregulated stablecoins will have to bear their own risk.
The HKMA will continue to conduct public education through various channels, including social media platforms, to enhance public understanding of the Ordinance.
(3) In the "Policy Statement 2.0 on the Development of Digital Assets in Hong Kong" issued in June 2025, the Financial Services and the Treasury Bureau (FSTB) has made clear that enhancing the legal and regulatory framework is one of the key focuses in promoting the development of the digital asset sector. Guided by the principle of "same activity, same risks, same regulation" under a risk-based approach, the Government and financial regulators will continue to enhance and establish a regulatory framework that reflects local circumstances and aligns with international standards and practices, with a view to providing a solid foundation for the healthy, responsible and sustainable development of the digital asset market in Hong Kong.
The FSTB and the SFC recently conducted a public consultation on the legislative proposals for the licensing regimes for digital asset dealing and custodian service providers from June 27 to August 29, 2025. The FSTB and the SFC are formulating details of the licensing regimes based on the views received from the public consultation, and will announce the legislative timetable in due course.
Ends/Wednesday, September 10, 2025
Issued at HKT 14:40
Issued at HKT 14:40
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