Hong Kong Classifies Unauthorized Stablecoin Promotions as Criminal Activity

Hong Kong is set to prohibit the marketing of unlicensed stablecoins to the public, as the city enhances regulations ahead of the implementation of a long-awaited regulatory framework.

This action is part of efforts by authorities to temper market exuberance and safeguard retail investors from hype and fraudulent activities within the digital asset sector.

Eddie Yue, the chief executive of the Hong Kong Monetary Authority (HKMA), issued a caution on Wednesday, just days prior to the enforcement of the city’s Stablecoins Ordinance on Aug. 1.

In a blog entry, he advised the public to exercise caution amid “frothy” market dynamics and heightened enthusiasm surrounding stablecoins.

Numerous Companies Seek Stablecoin Licenses Amid Stricter Regulations

Yue indicated that the new legislation will render it illegal to offer or actively market fiat-referenced stablecoins, or FRS, to retail investors. However, this prohibition applies solely to those lacking a license from the HKMA.

“We encourage the public to remain alert to prevent inadvertently breaching the law,” he stated, noting that some recent promotions have approached the realm of market manipulation or fraud.

This enforcement follows a rise in interest from businesses aiming to engage with Hong Kong’s developing Web3 ecosystem.

Over 40 companies have contacted regulators in recent months. However, the majority of their proposals are still in preliminary stages and do not possess feasible business plans.

Additionally, a few firms are reportedly still addressing fundamental issues related to risk management and technical capabilities.

Hong Kong’s new stablecoin regulations will take effect on August 1, introducing a strict licensing regime and reserve requirements for issuers.#HongKong #StablecoinRegulations https://t.co/Dq6UAZsKl1

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Among the firms reportedly preparing applications are Ant Group, JD.com, Standard Chartered, and Circle. Furthermore, several law firms informed the Chinese outlet Yicai that more clients are still completing their documentation. These submissions are anticipated once the law officially comes into force.

Stablecoin Legislation Establishes Strict Guidelines on Backing, Licensing, and Access

The stablecoin legislation introduces a licensing framework that encompasses both issuers and service providers.

According to official guidance, only a limited number of licenses will be issued initially. Additionally, unlicensed stablecoin offerings will be restricted to professional investors. The first approvals are expected to be granted later this year.

Yue cautioned that many applicants may face disappointment. “A mere announcement of intent to explore stablecoin-related business or digital assets is sufficient for some listed companies to capture headlines and drive stock prices and trading volumes upward,” he remarked. “Investors should maintain composure and exercise independent judgment.”

Under the new regulations, stablecoins must be entirely backed by high-quality, liquid reserves in the same currency. These reserves may consist of cash, bank deposits, or government bonds. Furthermore, they must be held in trust, distinct from company assets, and protected from creditor claims in the event of insolvency.

Global Momentum Grows for Stablecoin Regulation, HK Joins the Movement

The enforcement comes as global regulators increase their scrutiny of stablecoins. Recently, the Bank for International Settlements emphasized the sector’s potential money laundering risks, particularly highlighting vulnerabilities in cross-border applications.

The United States, meanwhile, enacted significant stablecoin legislation earlier this month under President Donald Trump’s administration, indicating a worldwide shift toward formal oversight.

Hong Kong, which has established itself as a digital asset center in Asia, has adopted a cautious yet proactive stance.

Yue stated that the HKMA is finalizing its supervisory and anti-money laundering guidelines, with plans to publish them by the end of July. While the final regulations may undergo minor adjustments from earlier drafts, the regulator is still anticipated to adopt a stringent approach regarding financial crime protections.

“Regulation is an art of balancing divergent objectives,” Yue noted. “More rigorous regulatory requirements will inevitably constrain the ability of stablecoin businesses to expand rapidly in the short term.”

To clarify the application process, the HKMA will issue an explanatory note next week detailing how it will accept and evaluate license applications.

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