Hong Kong's New Phase of Digital Asset Regulation: Implementation of the CARF Reporting Framework and License System Analysis

Hong Kong Financial Secretary Paul Chan recently reiterated at international conferences that Hong Kong practices the principle of "Same Business, Same Risk, Same Regulation" in digital asset supervision, implementing a licensing regime for digital asset platforms and stablecoin issuers, covering investor protection and anti-money laundering regulations. The core logic of this principle is: when digital asset businesses are substantively similar to traditional financial services in function, the types and levels of risks they face should also be comparable, and therefore the corresponding regulatory standards should not differ significantly.

Specifically, virtual asset trading platforms (VATPs) must apply for licenses from the Securities and Futures Commission (SFC) and comply with strict client asset custody requirements (including 98% cold storage, 2% hot storage, asset segregation, insurance, audits, etc.); stablecoin issuers must register under the Hong Kong Monetary Authority (HKMA) framework and meet capital adequacy, reserve management, and other compliance requirements. Based on this principle, Hong Kong has built a multi-layered regulatory system covering VASP licensing, stablecoin supervision, and anti-money laundering compliance, providing an internationally comparable compliance framework for digital asset businesses.

What stage is the legislative progress of the CARF reporting framework?

On May 22, 2026, the Hong Kong government gazetted the draft "Taxation (Amendment) (Cryptocurrency Reporting Framework and Amended Common Reporting Standard) Ordinance," which will be introduced for first reading in LegCo on June 3. This draft aims to implement the OECD’s 2023 cryptocurrency reporting framework (CARF) and simultaneously revise the existing Common Reporting Standard (CRS). The core mechanism of CARF requires jurisdictions to automatically exchange tax-related information on cryptocurrency transactions annually, integrating digital financial products and optimized reporting and due diligence requirements into the information exchange system. According to legislative arrangements, crypto service providers with reporting obligations related to Hong Kong must register with the Inland Revenue Department and fulfill due diligence, reporting, and record-keeping duties. The plan is for Hong Kong to start automatic exchange of crypto transaction tax data with relevant jurisdictions from 2028.

How will the CARF reporting framework impact crypto service providers?

The implementation of CARF will systematically reshape the compliance operation models of crypto service providers. First, providers need to establish comprehensive customer identification and transaction tracking systems to support due diligence and reporting requirements for cross-border tax information exchange. Second, the synchronized revision of CARF and CRS requires providers to perform precise reconciliation and effective integration between the two reporting systems. Practically, this means developing or upgrading internal compliance systems, establishing verification logic to confirm whether specific crypto assets should be reported under CARF, and then deciding whether to exclude them from existing CRS reporting. Industry-wise, CARF’s implementation will enhance tax transparency in the crypto market, but also impose higher demands on providers’ compliance costs, information system capabilities, and data security. For licensed virtual asset trading platforms operating in Hong Kong and those planning to enter the market, proactively deploying compliant architectures aligned with CARF standards will be a key task.

What is the progress of the stablecoin licensing regime in Hong Kong?

Hong Kong’s "Stablecoin Ordinance" came into effect in August 2025, establishing a mandatory licensing regime for fiat-backed stablecoin issuers. The HKMA received 36 license applications, with only 2 licenses issued in the first batch, effective from April 10, 2026. The licensed entities include Standard Chartered (Hong Kong), Hong Kong Telecom, a joint venture between Anzi Group and Dingdian Finance, and HSBC, a wholly owned subsidiary of HSBC Holdings. Dingdian Finance plans to launch phased issuance of regulated, Hong Kong dollar-pegged stablecoins (HKDAP) starting in Q2 2026, while HSBC plans to launch a Hong Kong dollar stablecoin in the second half of 2026, aiming to promote applications in cross-border payments, local payments, and tokenized asset trading. Core requirements for licensees include: paid-up capital of at least HKD 25 million, holding 100% high-liquidity reserves with daily disclosures, prohibition of algorithmic stablecoins, full KYC and AML compliance. Market sources indicate that some institutions, including Yuan Coin Technology, participating in the HKMA’s stablecoin sandbox testing, have not yet been included in the first batch of licenses.

What structural impact will the licensing regime have on the stablecoin market?

The cautious approach of only issuing 2 licenses in the first batch sends a clear regulatory signal: market entry standards have shifted from compliance feasibility to substantial verification of institutional-level safety and risk control capabilities. The licensed entities are all entities with bank-level compliance backgrounds—HSBC, as one of Hong Kong’s note-issuing banks, and Dingdian Finance, which combines Standard Chartered’s compliance foundation with Hong Kong Telecom and Anzi Group’s Web3 ecosystem capabilities. This selection indicates that the HKMA emphasizes the integrity of the compliance system, reserve asset management capacity, and the depth of sandbox validation as core approval dimensions. From a market structure perspective, the licensing regime will promote Hong Kong’s stablecoin market toward a "licensed qualified regime": unlicensed stablecoin issuance activities will be strictly prohibited, with violators facing fines up to HKD 5 million and imprisonment up to 7 years. This institutional arrangement not only creates risk isolation mechanisms but also establishes a foundational position for compliant stablecoins in future tokenized asset settlement, cross-border payments, and other scenarios.

How does the evolving global regulatory landscape amplify Hong Kong’s compliance value?

The regulatory landscape for crypto assets in major jurisdictions worldwide is undergoing structural adjustments. On May 14, 2026, the U.S. Senate Banking Committee passed the "CLARITY Act" with a vote of 15 to 9, which imposes strict restrictions on stablecoin yields, prohibiting stablecoin issuers from paying passive interest to holders. Some research institutions suggest that this policy may replicate the historical path of the 20th-century "Q Regulation" that led to the Eurodollar market, and over the next 18 to 36 months, between $30 billion and $50 billion in stablecoin capital could flow into Hong Kong and other regulator-friendly regions. Against this backdrop, Hong Kong has completed legislation for the Stablecoin Ordinance and issued its first licenses. Its "Same Business, Same Risk, Same Regulation" framework and comprehensive licensing system create a globally advantageous compliant environment. A Hong Kong legislator also pointed out that compared to the political cycle-influenced uncertainty of U.S. regulation, Hong Kong’s policy stability and continuity are core advantages.

How will the licensing path of Hong Kong’s Web3 hub strategy evolve?

Since the Hong Kong SAR government released the "Policy Declaration on the Development of Virtual Assets in Hong Kong" in October 2022, the city’s Web3 hub construction has gone through three key milestones: the VASP licensing regime took effect in June 2023, requiring licensed operation of virtual asset trading platforms; the "Policy Declaration 2.0" was issued in 2025, further clarifying the regulatory roadmap; and in April 2026, the first stablecoin licenses were granted. The regulatory framework features a "dual licensing, dual supervision" model: virtual asset trading platform service providers are regulated by the SFC, while independent custody service providers and stablecoin issuers are regulated by the HKMA. According to the Treasury Bureau, Hong Kong aims to submit draft regulations for digital asset trading and custody services within the year, further expanding licensed activities. Industry insiders believe that the next steps will focus on participant segmentation, product classification legislation, and cross-jurisdictional infrastructure connectivity. Paul Chan also pointed out that 2026 will be a pivotal year for the development of Web3 and artificial intelligence, with Hong Kong committed to becoming a global digital asset and intelligent finance hub. Under this gradual path, Hong Kong is steadily evolving from a crypto-friendly region to a mature digital financial center with licensing systems and institutional output capabilities.

Summary

Hong Kong’s digital asset regulatory system is undergoing a critical phase of institutional transformation. At the principle level, the "Same Business, Same Risk, Same Regulation" principle establishes the logical foundation for regulation, integrating digital asset activities into comparable risk management and compliance standards as traditional finance. At the reporting level, the legislative progress of the CARF framework will incorporate crypto transactions into the cross-border tax information exchange system, systematically enhancing market tax transparency. At the licensing level, the stablecoin regulation has formed a complete institutional cycle from enactment to the issuance of the first licenses, with prudent entry standards driving the market toward institutionalization and standardization. Meanwhile, the global regulatory landscape—especially the potential capital reallocation triggered by the U.S. CLARITY Act—amplifies Hong Kong’s compliance attractiveness.

Overall, Hong Kong’s Web3 hub strategy is transitioning from policy declarations to institutional formation. The continued advancement of the licensing regime—from VASP to stablecoin issuers, and soon to digital asset trading and custody licenses—is building a layered, comprehensive compliance system. Hong Kong’s successful experience offers a reference model for global digital asset regulation: under controlled risk conditions, clear legal frameworks and phased licensing systems provide certainty for fintech innovation, transforming regulatory certainty into market competitiveness.

Frequently Asked Questions (FAQ)

Q: When will the CARF reporting framework in Hong Kong start implementation?

The CARF reporting framework will officially commence in 2027. Crypto service providers with reporting obligations related to Hong Kong must register with the IRD and fulfill due diligence, reporting, and record-keeping duties. Hong Kong plans to initiate automatic cross-jurisdictional crypto transaction tax data exchange from 2028.

Q: Which institutions received the first batch of stablecoin licenses?

Hong Kong’s HKMA issued 2 stablecoin licenses in the first batch, effective from April 10, 2026. The licensees are Standard Chartered (Hong Kong), Hong Kong Telecom, Dingdian Group (a joint venture), and HSBC, a wholly owned subsidiary of HSBC Holdings.

Q: What are the core compliance requirements for stablecoin issuers?

Stablecoin issuers must be registered in Hong Kong, with paid-up capital of at least HKD 25 million, hold 100% high-liquidity reserves with daily disclosures, prohibit algorithmic stablecoins, and fully implement KYC and AML standards.

Q: What is the specific meaning of the "Same Business, Same Risk, Same Regulation" principle?

The core of this principle is: when digital asset businesses are functionally similar to traditional financial services, the risks they face should be comparable, and thus the regulatory standards should not differ significantly. Currently, virtual asset trading platforms are regulated by the SFC, and stablecoin issuers by the HKMA, with licensing regimes covering investor protection and AML compliance.

Q: What is the scope of the VASP licensing regime in Hong Kong?

According to the amendment to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (effective June 1, 2023), virtual asset service providers (VASPs) are formally included in the regulatory scope, requiring a SFC license to operate. The licensing regime covers trading and custody services, with licensed platforms required to custody client assets through wholly owned subsidiaries, complying with strict asset segregation, insurance, and audit requirements.

Q: How many licensed virtual asset trading platforms are there currently in Hong Kong?

Since the issuance of the policy declaration in 2022, Hong Kong has licensed 11 virtual asset trading platforms. With ongoing regulatory improvements, the number of licensed platforms and related activities is expected to further expand.