17 Jan 2022



On 12 January 2022, the Hong Kong Monetary Authority (the “HKMA”) issued a discussion paper on crypto-assets and stablecoins (the “Discussion Paper”), inviting industry and public views on the applicable regulatory approach. Against the backdrop of increasing global adoption of crypto-assets and enhanced use of technology in financial systems, the HKMA has visited the regulatory regimes of Hong Kong as well as other major countries and the recommendations from the global regulators on this nascent field. The two keys of the Discussion Paper are the regulatory frameworks regarding (i) the Authorized Institutions (“AIs”) and (ii) payment-related stablecoins.

Crypto-assets and Stablecoins

In the Discussion Paper, the definition and nature of crypto-asset and stablecoins are broadly set out as follows:

Definition and Nature



  • a type of private digital asset that depends primarily on cryptography and distributed ledger or similar technology
  • a sub-set of crypto-asset
  • aims to maintain a stable value relative to a specified asset, or a pool or basket of assets by being “pegged to” or supported by such assets
  • may be used for investment or payment purposes


Current Regulatory Regime in Hong Kong

A. Proposed licensing regime for virtual asset service providers (“VASP regime”)

In November 2019, the Securities and Futures Commission (the “SFC”) issued a position paper to set out a licensing framework for platforms which offer trading of securities-type VAs or tokens (“voluntary opt-in regime”).  In particular, the voluntary opt-in regime is applicable to only platforms that offer trading services of at least one virtual asset (“VA”) with securities features involved.  Platforms solely trading non-securities VAs are not covered.

In May 2021, Financial Services and the Treasury Bureau (“FSTB”) has completed the public consultation on introducing the VASP licence regime targeting at business operating a virtual asset (“VA”) exchange. At the initial stage, the licence regime will not apply to other types of VASPs such as crypto wallet providers or custodians. For further details, please refer to our news update “FSTB Consultation Conclusions on Legislative Proposals to Enhance Anti-Money Launder and Counter-Terrorist Financing Regulation in Hong Kong on Virtual Asset Services Providers” published on 9 July 2021.

B. Payment Systems and Stored Value Facilities Ordinance (“PSSVFO”)

Under the PSSVFO, the HKMA licenses and supervises Stored Value Facilities (“SVFs”), such as e-wallets and prepaid cards. The arrangements of crypto-assets, especially those used for payment purposes, are in some aspects similar to an SVF. Yet, whether a crypto-asset business amounts to an SVF is determined case by case. If a crypto-asset falls within the definition of SVF, it will be subject to a mandatory licensing regime administered by the HKMA. However, the definition of SVF of the PSSVFO may not cover certain types of stablecoins and/or their activities as may be seen in the market. Therefore, the HKMA is considering expanding the scope of the PSSVFO to cover such payment-related stablecoins.

C. Non-backed crypto-assets such as security crypto-assets

In November 2018, the SFC issued a circular to all intermediaries regarding regulatory requirements and expected standards and practices concerning the distribution of VA funds. For VA funds not authorised by the SFC, intermediaries should only target clients who are professional investors (as defined under the Securities and Futures Ordinance). The AIs intending to provide investment services related to VA must notify the HKMA and the SFC in advance.

Payment-related Stablecoins

Some stablecoins may become a commonly accepted means to make payment which may fall outside existing regulatory frameworks, posing risks to the market and community. One of the key risks is the money laundering/terrorist financing (ML/TF) risk as stablecoins may be held and changed hands anonymously and easily (even across the globe and borders) through the internet or other means.

Key Discussion Questions

A list of eight questions set out by the HKMA for industry and public feedback, together with its corresponding views, are extracted as follows:


Discussion Question

Views of the HKMA


Types of Stablecoins To Be Regulated


Should we regulate activities relating to all types of stablecoins or give priority to those payment-related stablecoins that pose higher risks to the monetary and financial systems while providing flexibility in the regime to make adjustments to the scope of stablecoins that may be subject to regulation as needed in the future?

  • Will adopt the risk-based approach to focus on activities related to payment-related stablecoins.
  • More attention will be placed on asset-linked stablecoins as they are more prevalent in the market and predominantly pegged to USD.
  • Flexibility will be built in the regime to adopt future changes.


Stablecoin-related Activities


What types of stablecoin-related activities should fall under the regulatory ambit, e.g. issuance and redemption, custody and administration, reserves management?

  • Stablecoin activities such as issuing, creating or destroying stable coins, transmission of funds and executing transactions in stablecoins will need to be licensed by the HKMA.


Authorisation and Regulatory Requirements


What kind of authorisation and regulatory requirements would be envisaged for those entities subject to the new licensing regime?

  • High-level regulatory requirements such as HKMA’s prior authorisation, fitness and propriety of the controllers and senior management, and sufficiency of reserve assets would be necessary for stablecoin arrangements.


Intended Coverage of the Regime


What is the intended coverage as to who needs a license under the intended regulatory regime?

  • Person carrying out the stablecoin-related activities mentioned in Q2 in Hong Kong or actively market to the public of Hong Kong such activities as a business requires an entity incorporated in Hong Kong and holds a relevant license granted by the HKMA.


Timing of the New Regime


When will this new, risk-based regime on stablecoins be established, and would there be regulatory overlap with other financial regulatory regimes in Hong Kong, including but not limited to the SFC’s VASP regime, and the SVF licensing regime of the PSSVFO?

  • Will consider the next steps including assessing the need to issue further documents on specific aspects of the regulatory framework in 2022/23.
  • Aims to establish the new regime no later than 2023/24.


Stablecoin Issuer


Stablecoins could be subject to run and become potential substitutes of bank deposits. Should the HKMA require stablecoin issuers to be AIs under the Banking Ordinance, similar to therecommendations in the Report on Stablecoins issued by the US President’s Working Group on Financial Markets?

  • Will draw reference from the relevant international standards and recommendations such as those put forth by the FSB and the BIS for stablecoins.
  • Rules and requirements under the proposed regime would take relevant aspects of Hong Kong’s current approach to SVF and payment regulation at a minimum to avoid regulatory arbitrage.


Unbacked Crypto-assets


Would the HKMA also have plan to regulate unbacked crypto-assets given their growing linkage with the mainstream financial system and risk to financial stability?

  • Will provide AIs with more detailed regulatory guidance regarding AIs’ business interface and intermediary services to customers related to crypto-assets.


Current or Prospective Parties


For current or prospective parties and entities in the stablecoins ecosystem, what should they do before the HKMA’s regulatory regime is introduced?

  •  Encourage current or prospective parties and entities in the stablecoins ecosystem to actively respond to this paper
  • Will continue to supervise AIs’ activities in relation to crypto-assets and implement the SVF licensing regime according to the prevailing supervisory powers and policies.


Analysis and Takeaways

The fast-growing use of crypto-assets may pose risks to the financial system. Developing regulatory perimeters to appropriately govern crypto-assets could address the various risks posed to users and the financial system while embracing the potential benefit of innovations in the market. The Discussion Paper is a timely step taken by the HKMA to update its regulatory tools and shows the initiative and determination of the regulators in Hong Kong to ensure monetary and financial stability amidst technological advancement. We welcome more discussions and sparkles on this topic.

Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.

This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.