LCQ11: Management of stablecoins
********************************
Question:
There are views that as an emerging digital financial instrument, the widespread use of stablecoins will deal potential blows to the liquidity of the traditional banking system and involve multiple risks such as cross-boundary capital flows and the protection of retail investors. As such, robust risk management and cross-boundary precautionary mechanisms are the key bottom lines of maintaining the resilience of Hong Kong's financial system and safeguarding national financial security. In this connection, will the Government inform this Council:
(1) in view of the potential impact of the widespread use of licensed stablecoins in the local market, whether the authorities have assessed if such developments will lead to a significant outflow of capital from the traditional banking system (i.e. "financial disintermediation"), thereby dealing blows to the deposit and lending base of Hong Kong's banks, their liquidity ratios and the stability of the financial system; if an assessment has been made, of the specific measures put in place by the authorities to guard against such risks and the details of these measures; if not, whether an assessment will be made;
(2) given the current complex geopolitical environment, whether the authorities have any long-term plans to establish more resilient cross-boundary stablecoin payment channels, and to safeguard the security of cross-boundary physical trade under the Belt and Road Initiative by enhancing settlement speeds and reducing currency exchange costs, thereby deepening the synergies between "digital Renminbi and Hong Kong stablecoins"; if so, of the details; if not, the reasons for that; and
(3) as it is learnt that at present, retail investors can still easily access and trade offshore fiat-referenced stablecoins not licensed by the Hong Kong Monetary Authority through various channels, of the specific means of enforcement and cross-boundary regulatory collaboration mechanisms put in place by the authorities to combat and prohibit unlicensed institutions or platforms from carrying out promotional, marketing or soliciting activities locally to members of the public; if so, the progress of the relevant work; if not, the reasons for that; apart from existing promotional measures, whether the authorities have plans to step up public education to prevent members of the public from inadvertently falling into stablecoin investment traps; if so, the details; if not, the reasons for that?
Reply:
President,
The Stablecoins Ordinance (Cap. 656) (the Ordinance), which came into effect in August 2025, has established a regulatory regime for stablecoin issuers, with a view to fostering Hong Kong's monetary and financial stability, protecting stablecoin users, as well as encouraging financial innovation to support real economic activities and financial market developments. Subsequently, in April 2026, the Hong Kong Monetary Authority (HKMA) granted stablecoin issuer licenses to two institutions with banking background. Based on the current business plans of those two institutions, regulated stablecoins in Hong Kong are expected to be launched between the middle and the second half of this year.
The Government and financial regulators will continue to be guided by the risk-based principle of "same activity, same risks, same regulation", and continue to monitor the market and take appropriate enforcement actions as necessary under the regulatory framework established by the relevant legislation, including the Ordinance and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). The goal is to ensure that stablecoin-related activities are conducted in an orderly manner in Hong Kong, thereby maintaining financial stability and protecting users. We also actively carry out relevant publicity and public education work to deepen the understanding of stablecoins and the Ordinance among both the public and the industry.
Having consulted the HKMA and the Securities and Futures Commission (SFC), the reply to the three parts of the question is as follows:
(1) In formulating the regulatory regime, the HKMA has thoroughly considered the potential risks that stablecoins may pose to the financial system, and has set out clear requirements for licensed stablecoin issuers to implement relevant risk management measures, including holding reserve assets in the form of eligible assets such as bank deposits as well as high-quality and highly liquid debt securities, and placing these eligible assets with banks in Hong Kong. If needed, the HKMA may impose additional regulatory requirements on licensees depending on the situation to ensure financial stability.
Upon the launch of regulated stablecoins, the HKMA will carry out effective ongoing supervision to ensure the licensees' compliance with relevant regulatory requirements. Meanwhile, the HKMA will closely monitor the operations of the licensees, continuously assessing the impact of stablecoin issuance and circulation on Hong Kong's financial system.
Furthermore, relevant international organisations (such as the Bank for International Settlements) are conducting further studies on the impact of the widespread use of stablecoins on the traditional banking system. The HKMA is actively participating in these studies to ensure that the risk management under Hong Kong's regulatory regime aligns with international standards.
(2) The HKMA has been testing out various emerging payment options through pilot projects, including central bank digital currency networks, tokenised deposits, and the interlinkage of fast payment systems across different jurisdictions. The two licensed stablecoin issuers are also actively involved in such testing. Each of these payment options has its own merits, and their growth potential will be largely determined by market demand across different use cases.
The HKMA will continue to maintain close communication with the two licensed stablecoin issuers and encourage them to further explore the synergies and connectivity of regulated stablecoins with other emerging payment options, with a view to creating value for real economic and financial activities.
(3) Currently, the Ordinance stipulates that only regulated entities specified under the Ordinance may engage in the sale (i.e. "offering" in the Ordinance) of stablecoins to the public. Since the commencement of the Ordinance, the HKMA has issued letters to non-regulated entities operating stablecoin offering businesses in the market to explain the provisions and requirements under the law, and has kept following up as part of the HKMA's daily work to ensure that the relevant entities have made improvements. Subject to the nature of individual cases, the HKMA may refer them to the Police or the Department of Justice for follow-up as necessary. Meanwhile, if the SFC identifies active marketing activities involving unregulated stablecoins during its monitoring of suspected unlicensed activities according to the AMLO (including instances where relevant persons actively market their services to the Hong Kong public), it will also transfer the relevant information to the HKMA for follow-up via the established information sharing mechanism.
In sum, the financial regulators safeguard users by deterring illegal or improper activities through effective market monitoring and taking appropriate actions. The financial regulators also work closely with law enforcement agencies to establish reporting mechanisms and ensure that unlawful activities are properly handled. For cases involving overseas entities actively marketing their stablecoin offering to the Hong Kong public, the HKMA can engage relevant authorities in other jurisdictions via existing regulatory co-operation mechanisms.
The public should also note that protection under the Ordinance applies only to the acquisition of regulated stablecoins through regulated entities. Individuals acquiring unregulated stablecoins via unregulated channels would have to take their own risk.
In addition, the Government and the SFC will introduce a bill to the Legislative Council this year to establish regulatory regimes for virtual asset dealing, custodian, advisory and management service providers, with a view to regulating dealing and other activities of virtual assets (including stablecoins) involving different modes of operation in a more comprehensive manner.
On publicity and public education, the Government, together with the HKMA, the SFC and others, have been committed to deepening the understanding of the Ordinance, stablecoins and other digital assets among the public and the industry, as well as enhancing the public's anti-fraud awareness. These efforts include publishing articles, press releases and social media posts to remind citizens to stay vigilant to the marketing of unlicensed stablecoins, as well as to reiterate that stablecoins are not an investment or speculative instrument, but a type of blockchain-based payment means. In response to the abrupt market movements linked to the stablecoin concept earlier, financial regulators have also urged the public to exercise caution, conduct thorough analysis of the relevant information, and refrain from making irrational investment decisions based solely on market hype or price momentum. Furthermore, through television interviews and speeches delivered at forums, the SFC has increased public awareness of the risks of engaging in virtual asset-related transactions with entities not licensed by the SFC, such as the fact that such unregulated entities carry high potential risks, including a lack of transparency, potentially unstable operations, and the lack of investor protection.
The Government and the financial regulators will continue to step up relevant publicity and public education efforts, and will publish updated lists of licensed stablecoin issuers and other specified regulated entities on the websites of the financial regulators, with a view to helping the public make informed decisions.
Ends/Wednesday, June 24, 2026
Issued at HKT 12:33
Issued at HKT 12:33
NNNN