Hong Kong's Stablecoin Licensing Attracts Banks, Brokers

Hong Kong's financial sector is buzzing as its Stablecoin Ordinance took effect on August 1. The Hong Kong Monetary Authority (HKMA) has released detailed licensing guidelines, covering critical aspects such as capital reserves, secure custody, KYC (Know Your Customer) protocols, and overall governance.

Banks Lead the Charge

Established banknote-issuing banks, including BOCHK and Standard Chartered, are expected to be among the first to apply. These institutions possess inherent regulatory and institutional advantages within Hong Kong’s existing currency framework. A core requirement is that each stablecoin must maintain full fiat backing, held securely under strict bank custody.

The HKMA plans to issue a limited number of licenses initially, making this a competitive landscape. Applications must be submitted by September 30 to be considered in the first batch. Issuers who do not apply within three months of the ordinance face potential shutdown by November.

A diverse range of entities are actively preparing applications. This includes state-owned enterprises, firms operating within regulatory sandboxes, and major fintech companies. The success of these applications will hinge on demonstrating viable real-world use cases and long-term sustainability.

Key target scenarios for stablecoin use include:

• Asset tokenization
• Streamlining cross-border payments
• Enhancing crypto trading activities

These use cases will significantly influence the HKMA's decisions regarding which firms receive approval.

Securities firms are initially concentrating on providing stablecoin trading, custody, and consulting services. They are also exploring opportunities in tokenized asset portfolio management. To date, 44 brokers have upgraded their Type 1 licenses to participate in this emerging market.

Hong Kong’s leading brokers are in a race to secure the necessary crypto licenses. Failure to do so could result in a loss of competitive edge in the evolving digital finance sector. Major Chinese brokers, such as Guotai Junan and Eastmoney, have already taken steps to upgrade their licenses.

Regulatory Warnings and Considerations

HK regulators warn against potential hype and speculative risks associated with stablecoins. Investors are urged to carefully assess asset backing and project viability. Regulators caution that concept tokens lacking substance could still emerge despite the new regulatory framework.

Some firms are exploring CNH-backed stablecoins to facilitate cross-border payments. For example, China Asset Management Company (Hong Kong) launched several tokenized funds this year. The Hua Xia RMB Digital Currency Fund became the first on-chain offshore RMB fund. Industry experts view this as a significant step in exploring the potential of offshore RMB stablecoins.

As Hong Kong embraces stablecoin licensing, Codeum stands ready to assist firms in navigating the complexities of blockchain security. Our services include smart contract audits, KYC verification, and custom smart contract development, ensuring a secure and compliant entry into the digital asset space.