A comprehensive understanding of the commonalities and characteristics of stablecoin legislation in Hong Kong and the United States: Is it a trend?

This article will focus on analyzing the institutional highlights and legislative process of Hong Kong's "Stablecoin Ordinance", and compare the stablecoin bills of the United States and Hong Kong to analyze their potential impact on the encryption industry.

Written by: Fintax

1. Introduction

On May 21, 2025, the Hong Kong Legislative Council officially passed the "Stablecoin Bill" (hereinafter referred to as the "Stablecoin Ordinance"), which will be published in the Gazette on May 30, 2025, and implemented within the year 2025. Following the progress of the Legislative Council, the Hong Kong Monetary Authority (hereinafter referred to as the HKMA) released two consultation documents (drafts for public consultation) on May 26—"Consultation Document on Proposed Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) Requirements for Regulated Stablecoin Activities" (hereinafter referred to as the "AML Consultation Document") and "Draft Guidelines for Regulating Licensed Stablecoin Issuers" (hereinafter referred to as the "Regulatory Guidelines Consultation Document"). The former clarifies the anti-money laundering and counter-terrorist financing obligations that licensed stablecoin issuers must fulfill, while the latter covers regulatory standards for reserve asset management, information disclosure, cybersecurity, and financial soundness, aiming to standardize the operational framework for licensed issuers. The "Stablecoin Ordinance" marks a milestone in Hong Kong's regulatory landscape for virtual assets, and this ordinance will constitute the legal foundation for the Hong Kong stablecoin market along with the forthcoming officially released "AML Consultation Document" and "Regulatory Guidelines Consultation Document."

Not long ago, the Guiding and Establishing National Innovation for U.S. Stablecoins Act (hereinafter referred to as the "GENIUS Act") was passed in the U.S. Senate with a vote of 66 in favor and 32 against. This indicates that the U.S. and Hong Kong, as major global financial centers, are engaged in a regulatory competition over stablecoins and even the international monetary system. Can Hong Kong leverage its geographical advantages, mature financial system, and open stance towards innovative technologies to become a model for the global stablecoin market? This article will focus on analyzing the institutional highlights and legislative process of Hong Kong's "Stablecoin Ordinance" and, by comparing the stablecoin bills of the U.S. and Hong Kong, examine their potential impact on the encryption industry.

2. Overview of the Legislative Process for Stablecoins in Hong Kong

This section summarizes the legislative history of Hong Kong stablecoin in the table below:

From the discussion document on encryption assets at the beginning of 2022, to the implementation of the licensing system for virtual asset trading platforms in 2023, and then to the verification of technical feasibility through sandbox testing in 2024, culminating in the completion of the legislative third reading in May 2025, it is evident that the "stablecoin regulations" that precede the "GENIUS Act" were not rushed, but rather the product of a complete legislative process that has been gradually refined over three and a half years.

3. Main Content and Highlights of the "Stablecoin Regulations"

3.1 Main Content

The "Stablecoin Regulations" is divided into 11 parts with a total of 175 articles, providing detailed explanations on the definition of stablecoins, licensing system, obligations of licensees, powers of the Monetary Authority, criminal offenses and penalties, supervision mechanisms, and other related content. We will outline the main content framework of the "Stablecoin Regulations" from three aspects: the definition of stablecoins, requirements for pegged assets, and requirements for issuing entities.

3.1.1 Definition of stablecoin

In terms of regulatory targets, the "stablecoin regulations" define stablecoins as "digitally protected forms of value" that meet five major elements: (1) expressed in the form of a unit of account or economic value; (2) used or intended to be used as a medium of exchange for public transactions for payment, debt settlement, or investment; (3) transferable, storable, or tradable electronically; (4) operating on a distributed ledger (which must meet the four characteristics of transaction record retention, network sharing, consensus verification, and node synchronization); (5) aimed at maintaining stable value by referencing a single asset or a group/basket of assets.

The definition of the aforementioned stablecoin is relatively broad; however, only stablecoins that are pegged to a certain standard value are subject to regulation under the "Stablecoin Regulation" (defined as "designated stablecoins"). Article 4.1 of the "Stablecoin Regulation" stipulates that designated stablecoins must fully reference "one or more official currencies" (such as USD, HKD), or reference "the calculation units or forms of economic value storage specified in the announcements of the Monetary Authority", or a combination of the above, and must maintain stable value through an asset-pegging mechanism. Therefore, algorithmic stablecoins that lack backing by physical assets, even if they meet the aforementioned definition of stablecoins, are excluded from the regulatory scope of the "Stablecoin Regulation" due to their difficulty in satisfying the asset-pegging mechanism.

In addition, the Monetary Authority retains the authority to expand the scope of stablecoins. Section 4.2 of the Stablecoin Ordinance grants the Financial Commissioner the power to include other digital forms of value within the scope of "designated stablecoins" through a Gazette announcement, allowing the Monetary Authority to dynamically adjust the regulatory scope in response to new types of encryption.

3.1.2 Reserve Asset Requirements

As mentioned earlier, the "Stablecoin Regulations" specify two types of assets that stablecoins can be pegged to, namely official currencies and assets designated by the monetary authority. In the "Regulatory Guidance Consultation Document" formulated based on the "Stablecoin Regulations", the monetary authority has refined the requirements for reserve assets.

Firstly, according to Article 2.1.1 of the "Consultation Document on Regulatory Guidelines", stablecoin issuers must ensure that their anchored reserve assets are fully covered, and issuers must maintain the market value of reserve assets at all times not less than the total face value of circulating stablecoins, and set buffers based on the risk characteristics of the assets (for example, credit bonds must be over-collateralized by more than 15%) to cope with market fluctuations. All assets must be denominated in the reference currency of the stablecoin (Hong Kong dollar stablecoins are exempt from holding US dollar assets due to the linked exchange rate system), and any currency mismatch must be approved in writing by the Monetary Authority in advance and risk mitigation measures such as over-collateralization must be implemented.

Secondly, the reserve assets are limited to highly liquid, low credit risk legal financial instruments, corresponding to Section 2.2.1 of the "Regulatory Guidance Consultation Document": bank deposits maturing within three months; tradable debt securities with a remaining maturity of no more than one year (must be issued or guaranteed by sovereign governments, central banks, qualified international organizations, or multilateral development banks, and meet the 0% risk weight standard as stipulated in Sections 55 to 58 of the Banking (Capital) Rules, while holding debt instruments issued by financial institutions and their affiliates is absolutely prohibited); cash receivables from overnight reverse repurchase agreements guaranteed by highly rated counterparties; investment funds established specifically for managing reserve assets and other assets recognized by the Monetary Authority.

Finally, Article 2.4.4 of the "Regulatory Guidance Consultation Document" stipulates that reserve assets must be completely separated from the issuer's own assets through a statutory trust structure. The validity of this trust must be verified by an independent lawyer's legal opinion and updated in the event of significant changes. The trust shall be custodied by a licensed bank or an institution recognized by the Monetary Authority, and the custody agreement must explicitly prohibit deductions from the reserve account to ensure priority payment to stablecoin holders in the event of bankruptcy.

3.1.3 Requirements for the Issuer of Coins

According to Article 14 of the "Stablecoin Regulations", the issuing entity of stablecoins must be a legally registered entity, including local companies in Hong Kong or qualifying foreign companies, and must establish a substantial business presence in Hong Kong. Based on this, the "Regulatory Guidance Consultation Document" proposed additional risk control measures. For example, if the issuing entity is a subsidiary of a group, its parent company must possess financial business qualifications and be subject to unified regulation at the group level. Banks can act as special issuing entities, but must also comply with banking regulatory requirements and relevant stablecoin regulations.

Regarding the amount of reserves, different entities have different requirements for reserve amounts. Non-bank issuing entities must maintain at least 25 million HKD or equivalent freely convertible foreign currency in paid-in capital to ensure that the capital is completely independent for the operation of stablecoin business, and it is prohibited to flow to related parties. Although bank-type issuing entities are exempt from this minimum capital requirement, they still need to meet the capital adequacy standards stipulated by the banking industry in accordance with Article 5.1.3 of the "Supervisory Guidance Consultation Document," and the capital used for stablecoin business must be strictly isolated from other bank assets.

It is worth noting that Article 7 of the "Consultation Paper on Regulatory Guidelines" imposes restrictions on corporate governance and personnel qualifications. The issuing entity must establish a governance structure with checks and balances, where at least one-third of the board members must be independent non-executive directors (INED). The appointment of core executives, including the Chief Executive Officer, the person in charge of the stablecoin business, and directors, must receive prior written approval from the Hong Kong Monetary Authority and undergo a "fit and proper" comprehensive assessment, covering dimensions such as professional competence, criminal record clearance, financial soundness, and conflict of interest review. Managerial personnel's employment information must be filed with the regulatory authorities, and their qualifications must continuously meet the requirements for performing their duties. All key personnel involved in the stablecoin business must receive regular compliance training and behavioral supervision.

3.2 Highlights of Hong Kong stablecoin

As countries accelerate the implementation of stablecoin legislation, Hong Kong's "Stablecoin Regulation" still has two major highlights.

Firstly, the cross-border regulation of stablecoins in Hong Kong is a highlight of the "Stablecoin Ordinance" system. Based on the traditional financial regulation principle of "territorial jurisdiction", any specified stablecoin issued locally in Hong Kong must apply for a license to ensure that local financial activities are controlled. Hong Kong's innovation lies in breaking geographical limitations and extending regulation to stablecoins issued overseas. Specifically, if a stablecoin issued overseas is pegged to the Hong Kong dollar or actively promotes stablecoin issuance activities to the Hong Kong public, it will be required to apply for a license. When the issuance of a certain stablecoin may affect "the monetary stability, financial stability or the function of Hong Kong as an international financial center" or "involves significant public interest", the Monetary Authority also has the right to regulate it and require it to fulfill the license application obligations. The "Stablecoin Ordinance" imposes strict cross-border regulations on stablecoin issuance, aiming to guide overseas issuers targeting Hong Kong to apply for licenses and accept regulation, ensuring the safety of the financial system in Hong Kong and the sovereignty of its currency is not threatened.

Secondly, the diversification of pegged fiat currencies reflects Hong Kong's openness as an international financial center. As previously mentioned, Hong Kong's designated stablecoins can maintain value stability by referencing one or more official currencies. Due to the existence of the linked exchange rate system (the Hong Kong dollar to US dollar exchange rate remains stable within the range of 7.75 to 7.85 HKD to 1 USD), the reserve assets of designated stablecoins pegged to the Hong Kong dollar can be denominated in US dollars. Correspondingly, Hong Kong stablecoins must comply with international anti-money laundering (AML) and counter-terrorism financing (CFT) standards to reduce the regulatory complexity brought about by multi-currency pegs. The multi-currency pegging mechanism not only reduces the devaluation risk of a single pegged fiat currency but also attracts international investors pegged to mainstream currencies such as the US dollar and the euro, enhancing the competitiveness of the Hong Kong stablecoin market. Compared to pegs to a single currency or a specific sovereign asset, Hong Kong stablecoins clearly provide a richer choice and institutional guarantees.

4. Comparison with the "GENIUS Act"

Although the "stablecoin regulations" have brought a relatively comprehensive regulatory framework for stablecoins in Hong Kong, the value anchoring mechanism of encryption assets is not native to this. USDT and USDC, which are anchored to the US dollar, have already gained ample practical opportunities in the global trading and settlement system. With the end of the Biden administration's high-pressure period on encryption assets, the "GENIUS Act" led by the Trump administration may provide another policy path for global stablecoin regulation.

4.1 The core content of the "GENIUS Act"

4.1.1 Scope of Application

The bill clearly defines "payment stablecoins" as a type of digital asset issued through distributed ledger technology, whose core function is to serve as a payment or settlement tool, and requires issuers to commit to redemption at a fixed currency value. It is worth noting that national currencies, deposits (including blockchain-recorded deposits), and securities (such as those defined by the Investment Company Act of 1940) are explicitly excluded.

On a technical level, the bill adopts a "technology-neutral" principle, allowing the issuance of stablecoins based on blockchain, smart contracts, and other innovative forms, but mandating the independent custody of their reserve assets, prohibiting the mixing of reserve assets with the issuer's own assets to prevent the risk of fund misappropriation.

4.1.2 Regulatory Hierarchy

The bill establishes a layered regulatory framework of "federal leadership + state-level supplementation:"

• Federal level: Institutions such as the Federal Reserve and the Office of the Comptroller of the Currency (OCC) review and issue licenses to national issuers with a market capitalization exceeding $10 billion, requiring regular disclosure of reserve asset details, acceptance of stress tests, and compliance with the Bank Secrecy Act and anti-money laundering (AML) regulations.
• State level: Small and medium-sized issuers (market capitalization ≤ 10 billion USD) can choose a state regulatory framework, but must ensure it is "substantially consistent" with federal standards (certified by the Department of the Treasury).

4.1.3 Issuer and Compliance Requirements

The bill sets strict entry thresholds for issuers and clearly states that stablecoins must not provide interest returns:

• Three types of qualified issuers:
• Subsidiary of a depository institution (requires Federal Reserve approval);
• Federally approved non-bank entities;
• State-level approval entities (as mentioned above, mandatory inclusion in federal regulation after market capitalization exceeds 10 billion dollars).

For foreign issuers, the bill requires them to register in the U.S. and prove that "the regulatory framework of their home country is substantially comparable to that of the United States," while also possessing the technical capability to execute "legal orders" (such as asset freezes) from U.S. courts or government.

4.1.4 Reserve Assets and Transparency Requirements

The bill imposes mandatory requirements on the allocation and transparency of reserve assets:

• Reserve assets must be high liquidity assets: reserves must cover 100% of the circulation, limited to US dollar cash, government bonds maturing within 93 days, repurchase agreements backed by government bonds, and other low-risk assets, and re-pledging or reuse is prohibited.
• Disclosure and Audit: Issuers must publicly disclose the scale, structure, and custody location of reserve assets every month, and have them reviewed by a registered accounting firm. The CEO/CFO must endorse the authenticity of the data. Non-public companies with a circulation of over $50 billion must submit audited financial statements to ensure financial transparency.

4.1.5 Consumer Protection and Cross-Border Coordination

The bill safeguards consumer rights and prevents systemic risks through the following provisions:

• Redemption and fee transparency: Issuers must clearly outline the redemption process in a timely manner, redeeming at face value without delay.
• Prohibition of Political Endorsement: It is prohibited to imply government endorsement in names or marketing, and any members of Congress or senior executive officials are prohibited from issuing payment stablecoin products during their public service.
• Bankruptcy Priority: The claims of stablecoin holders take precedence over other creditors, and the reserve assets are independent of the issuer's bankruptcy assets, ensuring the safety of holders' funds.

4.2 "Stablecoin Regulations" and "GENIUS Act"

The "Stablecoin Regulation" and the "GENIUS Act" both focus on the regulation of stablecoins pegged to fiat currencies or other assets, requiring 100% asset coverage and the isolation of reserve assets for protection, as well as compliance with international anti-money laundering (AML) regulations to avoid criminal risks. However, specifically, there are many differences between the two across various dimensions, and this section will organize these nuances into a table:

5. The Potential Impact of the Two Major Bills

During the Biden administration, the Hong Kong Special Administrative Region government worked to improve the regulatory gaps in the encryption asset sector, attracting over 200 Web3 companies to establish or expand their operations in Hong Kong, initially forming an ecological cluster of encryption assets. However, compared to the high-pressure regulation of encryption assets during the Biden administration, the Trump administration's open policy stance on encryption assets attempted to reconstruct America's leadership in this field. Although the implementation of policies still carries uncertainty, Trump's strong support for encryption assets has further reinforced market expectations for regulatory easing, inevitably squeezing the space for Hong Kong's stablecoin market. In the face of the ever-changing international policy environment, Hong Kong can leverage the unique institutional arrangements granted by 'one country, two systems' to actively participate in the formulation and practice of global encryption asset rules.

In terms of reserve asset management, the "Stablecoin Regulation" offers diversified options. The "GENIUS Act" strictly limits the types of reserve assets required to concentrate reserves on the highest quality liquid assets, effectively forming a configuration strategy primarily centered on U.S. Treasury bonds. Due to their perfect balance of safety, yield, and liquidity, U.S. Treasury bonds become an inevitable choice for issuers, also deeply binding the U.S. Treasury bond market with the encryption ecosystem. In contrast, the "Stablecoin Regulation" provides global investors with more diversified options for value storage and payment. The diversified reserve assets make it possible for Hong Kong to establish a stablecoin system that is controllable in risk and meets the demand for multiple coins.

From a political positioning perspective, Hong Kong is backed by the vast entity economic system of mainland China. The long-term value of crypto assets should not be limited to financial speculation; serving the real economy and the digitization of real assets is also an important path. Mainland China has the most complete industrial system in the world, providing rich application scenarios for the payment function of stablecoins. From international logistics and supply chains to digital asset rights confirmation, there are a large number of high-value assets with tokenization potential. Hong Kong can fully leverage its institutional advantages as an international financial center and its global resource allocation capabilities to create a world-leading platform for the issuance and trading of real-world asset tokenization (RWA), facilitating the efficient and compliant value transfer of high-quality assets from the mainland and globally in the Hong Kong market. This will promote the integration of traditional assets in the mainland with the crypto financial system, building a more diversified crypto asset ecosystem.

At the same time, we should also recognize the objective trends in the current international encryption ecosystem. On one hand, the United States has significant advantages in underlying fields such as public chain technology, encryption protocols, and development tools. If some startup projects and developers continue to choose the United States as their headquarters or research and development center, it will inevitably divert talent and capital resources in the Web3 field from Hong Kong. On the other hand, after more than a decade of evolution, the global encryption ecosystem has gradually transformed from the early "de-dollarization" to a "dollarization" pattern centered around the US dollar. The issuance, circulation, and settlement systems of mainstream stablecoins such as USDT and USDC are almost entirely dominated by the United States. Against this backdrop, exploring Hong Kong's stablecoin system can provide different institutional pathways for the market and help promote compliance practices for stablecoins in areas such as cross-border payments and asset tokenization.

6. Conclusion

With the implementation of Hong Kong's "Stablecoin Regulation" and the United States' "GENIUS Act", the global regulatory landscape for stablecoins has officially entered an era of institutional competition. Hong Kong's regulatory framework is centered on "diversified reserves + prudent regulation", which not only provides the market with alternative choices outside of the US dollar system but also promotes exploration in emerging directions such as RWA (Real World Assets tokenization), further broadening the application possibilities of stablecoins in the real economy. In the future, as more countries introduce stablecoin regulatory bills, if Hong Kong can continue to play a pivotal role as a "bridge between the mainland and the international", it may become a key node in the new order of global digital finance, offering international capital richer options for value storage and payment.

At the same time, the U.S. "GENIUS Act" established a federal-centered multi-layer regulatory framework, strengthening the control over the operational risks of stablecoins through reserve asset requirements, audit disclosure mechanisms, and issuer qualification settings, while its principle of technological neutrality also leaves room for future innovation. Although the regulatory paths of Hong Kong and the United States differ, they both reflect a common pursuit of an orderly and compliant development of the stablecoin market.

In summary, the gradually clarified stablecoin regulatory framework helps to repair and amplify the overall confidence in the encryption market, while the interaction between regulation and the market is driving the global encryption ecosystem into a new stage of compliant development.