Hong Kong's "Stablecoin Ordinance" (hereinafter referred to as the "Ordinance"), which takes effect in August 2025, marks a significant step forward in virtual asset regulation. The Ordinance aims to establish a comprehensive regulatory system for stablecoins, a specific type of virtual asset, balancing innovation promotion with risk prevention. The Ordinance adopts a classification-based regulatory approach, primarily dividing stablecoins into two categories based on their issuance location and applicable laws:

(1) Stablecoins issued under Hong Kong regulations ("Onshore Compliant Stablecoins")

These are stablecoins issued, sold, or traded within the Hong Kong Special Administrative Region in accordance with the "Stablecoin Ordinance" and its subsidiary regulations, and must meet the full set of regulatory requirements set by the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC).

Core regulatory requirements include:

Licensing system: Any institution wishing to issue stablecoins in Hong Kong must obtain prior approval from the HKMA and acquire a "Stablecoin Issuance License." Applicants must meet strict capital requirements (initial registered capital may be as high as HKD 20 million), corporate governance standards, risk management, and internal control frameworks.
Reserve asset management: Issuers must hold "high-quality liquid assets" equivalent in value to the circulating stablecoins as reserves. These assets typically include cash, cash equivalents (such as short-term government bonds, high-rated commercial paper), and some fiat currency deposits, all held in regulated custodians and strictly segregated from the issuer's own assets.
Regular audits and disclosures: Issuers are required to have their reserve assets verified monthly by independent third-party auditors and publicly disclose audit reports. They must also regularly report operational data, financial status, and risk exposures to regulators.
Stability mechanism and redemption guarantee: A clear exchange mechanism between stablecoins and pegged assets (usually fiat currency) must be established, ensuring holders can redeem at the promised rate (typically 1:1) in a timely manner. The redemption process must be straightforward and convenient, with a maximum redemption time generally not exceeding five business days.
Anti-money laundering and counter-terrorist financing: Strict customer due diligence (CDD) and transaction monitoring requirements must be followed, consistent with Hong Kong's current "Anti-Money Laundering and Counter-Terrorist Financing Ordinance."

(2) Stablecoins issued outside Hong Kong under other legal jurisdictions ("Offshore Stablecoins")

This category refers to stablecoins issued and operated under the laws of overseas jurisdictions (such as the US, EU, Singapore, etc.). If such stablecoins are to be promoted, sold, or provided services to the public in Hong Kong, they must meet the access conditions set by the Ordinance.

Main regulatory requirements include:

Recognition of "equivalent regulation": The regulatory framework of the jurisdiction where the offshore issuer is based must be recognized by the HKMA as "substantially equivalent" or "not less than" Hong Kong's standards. This requires the HKMA to establish cooperation memoranda (MOUs) with local regulators or conduct specific assessments.
Local designated representative: Offshore issuers typically need to appoint a licensed entity in Hong Kong as their representative, responsible for communication with regulators and ensuring compliance with local laws.
Local service providers' regulation: Even if the stablecoin is issued offshore, any institutions providing trading, exchange, custody, or related financial services in Hong Kong (such as exchanges, wallet providers) must obtain appropriate licenses. These entities are responsible for conducting due diligence on the offshore stablecoins they list, ensuring compliance with Hong Kong's regulatory principles.
Possible additional restrictions: For offshore stablecoins not recognized as "equivalent regulation," activities in Hong Kong may be limited, such as only serving professional investors or prohibiting active marketing to the Hong Kong public.

The significance of classification regulation reflects Hong Kong's principle of "same risk, same regulation," while balancing international cooperation and local market realities. On one hand, it ensures that stablecoins issued within Hong Kong are highly secure and trustworthy; on the other hand, by conditionally accepting offshore stablecoins, Hong Kong maintains its openness and interconnectedness as an international financial center.

(3) About the transition period

The Hong Kong "Stablecoin Ordinance" officially takes effect on August 1, 2025, and a six-month transition period is set for existing stablecoin issuers.

The specific timeline and requirements are as follows:

Transition period duration: From August 1, 2025, to January 31, 2026.
Key milestones: Before October 31, 2025, issuers operating before the ordinance's effective date must submit formal license applications to the HKMA, along with relevant business proof and compliance commitments. Failure to apply on time will result in entering a winding-up phase from November 1, 2025, and they must cease operations in an orderly manner.
By January 31, 2026: Issuers who have submitted applications and are not in winding-up can continue their stablecoin operations while awaiting HKMA approval. During this period, the HKMA may issue temporary licenses to qualified institutions, which within their scope are equivalent to full licenses.
By February 1, 2026: The HKMA plans to complete the issuance of temporary licenses to qualifying existing issuers.
For those unable to meet regulatory requirements within three months (by October 31, 2025), they must cease operations within four months (by December 31, 2025). If the HKMA explicitly rejects their application, they must terminate operations within one month of notification.
The HKMA emphasizes that the transition period applies only to non-shell entities operating in Hong Kong before the ordinance's effective date. New entrants must apply directly for full licenses. If their operational entity is outside Hong Kong, they must also apply directly.

Currently, Tether has not submitted a stablecoin license application in Hong Kong. Due to registration location, capital requirements, reserve structure, and local operation thresholds, it is unlikely to meet the application conditions in the short term. If Tether plans to enter the Hong Kong retail market compliantly in the future, it must first register a local entity, inject HKD 25 million in paid-up capital, adjust its reserve structure, and establish a local office.

Legal Status of USDT under Hong Kong's "Stablecoin Ordinance"

USDT (Tether) is the world's largest stablecoin by market capitalization, issued by Tether Limited headquartered outside Hong Kong, primarily pegged to the US dollar. Its legal status under Hong Kong's new regulations is a key focus of market attention. Previously, we discussed "USDT trading compliance or non-compliance," which can be compared here.

(1) Which category does USDT belong to?

According to the classification standards of the "Stablecoin Ordinance," USDT clearly falls into the category of "stablecoins issued under other laws outside Hong Kong." Its issuing entity, Tether Limited, is registered in the British Virgin Islands, with operations worldwide, mainly regulated by the jurisdiction where it operates (such as the US, Europe, etc.), and is not issued under Hong Kong law.

(2) Conditions for conducting USDT-related business in Hong Kong

Although USDT itself is an offshore stablecoin, any institution wishing to provide USDT-related services to the public in Hong Kong must meet strict conditions:

Licensing: Cryptocurrency exchanges, OTC platforms, payment service providers, etc., offering USDT and fiat or other virtual asset exchanges, trading, transfers, or custody services, must apply for a "Virtual Asset Service Provider (VASP)" license from the SFC, and may also need a "Money Service Operator (MSO)" license from the HKMA (if involving fiat currency exchange).
Due diligence obligations: Licensed platforms must conduct ongoing due diligence on USDT when deciding to list it. This includes assessing Tether Limited's corporate governance, reserve asset quality and transparency, redemption mechanisms' reliability, audit practices, compliance records, and overseas regulatory oversight. Platforms must ensure USDT's risks are properly managed and fully disclose related risks to customers.
Recognition or approval lists: The market generally expects the HKMA and SFC to publish an "Approved Offshore Stablecoins" list or establish evaluation criteria. Whether USDT can be included depends on Tether Limited's willingness to cooperate with Hong Kong's regulatory requirements (such as providing more transparent reserve proof, collaborating with Hong Kong regulators) and its overseas regulatory status meeting "equivalent regulation" standards.
Transition arrangements: After the ordinance takes effect, existing USDT services may be allowed to continue during the transition period, provided service providers complete all compliance rectifications and obtain the necessary licenses within the period.

(3) Will USDT be banned after the ordinance takes effect?

The Hong Kong "Stablecoin Ordinance" came into effect on August 1, 2025. It does not prohibit the use of USDT but imposes strict regulation on its trading methods and channels. Whether USDT can continue to be used in Hong Kong depends on the trading channels.

According to the ordinance, trading of stablecoins like USDT is divided into two categories:

Retail users: Only permitted to trade "retail stablecoins" approved by the HKMA. USDT has not received such approval, so retail users cannot buy or sell USDT directly on licensed exchanges.
Professional investors: Can trade USDT and other unapproved stablecoins but only through virtual asset trading platforms licensed by the SFC, with strict KYC and AML procedures.

Therefore, the only legal way for compliant USDT use in Hong Kong currently is through licensed exchanges such as OSL HK and HashKey. These platforms provide USDT-to-HK dollar, USD, and other fiat currency exchange services for professional investors, ensuring traceability and legitimate funds.

Previously, unlicensed OTC (over-the-counter) exchange shops across Hong Kong, lacking the "license provider" license required by the Ordinance, can no longer legally offer USDT exchange services. Some shops have suspended operations or moved underground; trading USDT through unlicensed channels involves legal risks.

In summary, USDT is not banned in Hong Kong but has shifted from "free exchange" to "compliant trading." Ordinary users wishing to use USDT legally must do so through licensed exchanges and meet professional investor requirements.

How Users Can Manage Compliance and Risks in USDT-Related Activities

For retail investors, traders, and merchants, interacting with USDT under the new Hong Kong regulations requires strategic adjustments to cope with the compliance environment and potential risks.

(1) Can retail investors hold and trade USDT?

This is the most concerned question for ordinary users. According to the spirit of the "Ordinance" and Hong Kong's consistent regulatory approach:

Holding: The law does not prohibit individuals from holding any virtual assets, including USDT. The Ordinance regulates issuance and commercial services, not personal holdings. Therefore, retail investors holding USDT in their private wallets are not illegal.
Trading via licensed platforms: Retail investors who want to buy or sell USDT through Hong Kong-licensed virtual asset trading platforms must ensure the platform has obtained relevant licenses and is authorized to provide USDT trading pairs. Such trading will be protected by investor safeguards (e.g., client asset segregation, risk disclosures).
Differences between professional investors and retail investors: Regulators may be more lenient with professional investors (defined under the Securities and Futures Ordinance, usually high-net-worth institutions or individuals), allowing licensed entities to offer broader virtual asset services, possibly including unapproved offshore stablecoins. Retail investors generally can only access more carefully vetted, lower-risk stablecoins (including some recognized offshore stablecoins).

(2) Compliance pathway choices

Switch to licensed platforms: This is the core recommendation. Users should closely monitor the list of licensed VASP platforms published by the SFC and HKMA. Once a platform is licensed and authorized to provide USDT services, users should prioritize trading and custody on such platforms, completing strict KYC procedures.
Pay attention to "recognized" stablecoins: Keep an eye on potential "recognized stablecoins" lists issued by regulators. If USDT is not on the initial list, users should consider alternatives, such as other stablecoins that may be recognized earlier (e.g., compliant stablecoins issued in Hong Kong or offshore stablecoins meeting "equivalent regulation" like USDC).
Understand service term changes: Licensed platforms may modify their service terms to meet regulatory requirements, such as introducing trading limits, enhanced due diligence, or specific redemption terms. Users should read and understand these changes carefully.

(3) Risk management strategies

Asset custody risk: Continuing to store USDT on unregulated overseas exchanges or unknown wallets significantly increases risk. Such platforms may cease service suddenly or go bankrupt due to compliance issues. Prefer custody solutions regulated by Hong Kong or reputable jurisdictions.
Redemption risk awareness: Even on licensed platforms, the ultimate redemption ability depends on Tether Limited's reserves and willingness. Users should monitor Tether's transparency reports (reserve composition, audit opinions) and global regulatory developments. Avoid relying solely on one stablecoin for liquidity.
Legal and regulatory risks: Engaging in unlicensed trading is illegal and not protected by Hong Kong investor compensation funds. Such activities may be ordered to cease, leading to frozen or lost funds.
Price and liquidity risks: Regulatory transition may cause market volatility. If USDT faces obstacles on major licensed platforms, its liquidity in Hong Kong may temporarily decline, causing discounts against USD. Users should prepare for market fluctuations.

(4) Long-term adaptation advice

Asset diversification: Do not overly rely on USDT as the sole stablecoin or fiat substitute. Explore other stablecoins that better comply with Hong Kong's new regulations to diversify holdings.
Continuous education and information gathering: The virtual asset regulatory environment evolves rapidly. Users should proactively obtain information from official sources like the HKMA and SFC, follow licensed institutions' announcements, and avoid unverified rumors.
Tax compliance: Hong Kong currently does not levy capital gains tax, but using virtual assets for goods, services, or business operations may involve other taxes. Keep complete transaction records for potential tax reporting.
Technical security: Regardless of regulatory changes, securing private keys and preventing phishing are always top priorities. Use hardware wallets for large assets and enable multi-factor authentication.

The enactment of Hong Kong's "Stablecoin Ordinance" is not intended to stifle USDT or stablecoin innovation but aims to build a safe, orderly, and sustainable market environment. For USDT, its "usage" will undergo a fundamental transformation—from relatively free and unregulated widespread use to conditional, regulated use within a strict regulatory framework.

Disclaimer: The information on this page may come from third-party sources and is for reference only. It does not represent the views or opinions of Gate and does not constitute any financial, investment, or legal advice. Virtual asset trading involves high risk. Please do not rely solely on the information on this page when making decisions. For details, see the Disclaimer.

Comment

0/400

No comments