Regulatory Regime for Stablecoin Issuers

Regulatory Regime for Stablecoin Issuers | Bestar

Hong Kong Stablecoin Issuer Regulation

Regulatory Regime for Stablecoin Issuers

Hong Kong has implemented a comprehensive regulatory regime for stablecoin issuers, primarily overseen by the Hong Kong Monetary Authority (HKMA). The regime, which came into effect on August 1, 2025, is a key part of Hong Kong's strategy to become a leading virtual asset hub.

Key Features of the Regulatory Regime:

• Scope: The new regime specifically targets "fiat-referenced stablecoins" (FRS), which are stablecoins that aim to maintain a stable value by referencing one or more official currencies. The regulations apply to issuers who:

  
  

  • Issue a specified stablecoin in Hong Kong.

    
    

  • Issue a stablecoin that references the Hong Kong dollar, regardless of where it is issued.

    
    

  • Actively market a stablecoin issuance to the Hong Kong public.

    
    

• Licensing: Issuers of FRS must obtain a license from the HKMA. This is a critical requirement for operating in the Hong Kong market. The HKMA has stated it will set a high bar for licensing, and only a limited number of licenses are expected to be granted initially.

  
  

• Reserve Assets: To be licensed, issuers must adhere to strict requirements for reserve management:

  
  

  • 100% Backing: The market value of the reserve assets must, at all times, be at least equal to the par value of the outstanding stablecoins in circulation.

    
    

  • High-Quality, Liquid Assets: Reserve assets must be high-quality, highly liquid, and have minimal investment risk. Acceptable assets include cash, short-term bank deposits (not exceeding three months), and government securities with a residual maturity of one year or less.

    
    

  • Segregation: Reserve assets must be fully segregated from the issuer's other assets and protected from creditor claims in all circumstances.

    
    

  • Currency Matching: Reserve assets must be denominated in the same reference currency as the stablecoin.

    
    

• Consumer Protection: The framework includes robust measures to protect stablecoin holders:

  
  

  • Redemption Rights: Holders have an absolute right to redeem their stablecoins at par value. Redemption requests must be processed within one business day, and issuers cannot impose unreasonable fees or burdensome conditions.

    
    

  • Insolvency Protection: In the event of an issuer's insolvency, stablecoin holders have specific protections, including the right to a direct claim on the reserve asset pool.

    
    

• Distribution and Marketing: The regime creates a "closed-loop" system for stablecoin distribution. Only "permitted offerors" are allowed to offer or market stablecoins in Hong Kong. These include the stablecoin issuer itself, authorized financial institutions, and specific licensed virtual asset trading platforms (VATPs).

  
  

• Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT): Licensed stablecoin issuers are considered "financial institutions" and are subject to Hong Kong's AML/CFT legislation. They must implement robust measures, including customer due diligence (KYC) on all stablecoin holders, transaction monitoring, and compliance with the "Travel Rule" for virtual asset transfers.

  
  

• Penalties: Operating a stablecoin business in Hong Kong without a license is a serious offense, with penalties including fines of up to HK$5 million and imprisonment for up to seven years.

  
  

This new framework demonstrates Hong Kong's commitment to fostering a regulated and responsible virtual asset ecosystem while maintaining financial stability and protecting investors.

Fees

Under Hong Kong's regulatory regime for stablecoin issuers, the concept of "fees" is multifaceted and encompasses both direct licensing costs and ongoing operational requirements.

Direct and Ongoing Regulatory Fees

• Licensing Fee: A key requirement under the new Stablecoins Ordinance is the payment of a license fee to the Hong Kong Monetary Authority (HKMA). The specific amount of this fee is detailed in Schedule 3 of the ordinance. This fee must be paid:

  
  

  • Within 14 days after the HKMA grants the license.

    
    

  • Annually on or before each anniversary of that date for the duration of the license.

Financial Resources and Operational Costs

While the direct license fee is a clear cost, the regulatory framework also imposes significant financial resource requirements that act as a barrier to entry and ongoing operational expenses. These are not fees paid to the HKMA but are mandatory for a license:

• Minimum Paid-up Share Capital: Licensed stablecoin issuers (excluding authorized institutions like banks) must maintain a minimum paid-up share capital of at least HK$25 million, or its equivalent in a freely convertible currency. The HKMA may approve other forms of financial resources that meet or exceed this threshold.

  
  

• Liquid Capital: Issuers must maintain liquid assets to meet their obligations as they fall due. This includes having excess liquid capital equivalent to at least 12 months of operating expenses.

  
  

Fees for Stablecoin Holders

The regulatory regime also addresses fees related to stablecoin redemption, with a focus on consumer protection:

• No Unreasonable Fees: The regulations stipulate that issuers cannot impose "unreasonable fees" or "unduly burdensome conditions" on redemption requests. This is to ensure that stablecoin holders have an absolute and fair right to redeem their stablecoins at par value.

  
  

• Redemption Fees: While a "reasonable fee" is allowed, the HKMA has provided additional guidance on how it will assess the reasonableness of any such fees to ensure they don't undermine the redemption right.

  
  

Professional Fees

Obtaining a license to issue fiat-referenced stablecoins in Hong Kong involves a multi-faceted cost structure that goes beyond a simple application fee. Based on the regulatory requirements and market context, here are professional fees and related expenses:

1. Professional Services and Advisory Fees

These are the fees paid to external consultants and experts to navigate the complex licensing process and ensure compliance with the regulatory framework.

• Legal and Regulatory Advisory: This is the largest component of professional fees.

  
  

  • Scope: Services include drafting and reviewing application materials, preparing a comprehensive business plan, advising on corporate governance and compliance structures, and communicating with the HKMA on behalf of the applicant.

    
    

  • Cost: HK5million - HK10 million. This range is due to the complexity of the stablecoin model and the extent of legal work required to meet the HKMA's stringent "fit and proper" criteria.

    
    

• Technology and Cybersecurity Audit:

  
  

  • Scope: Licensed issuers must demonstrate robust IT systems, security protocols, and operational resilience. An independent third-party audit is often required to certify compliance.

    
    

  • Estimated Cost: HK2million - HK5 million, depending on the scale and complexity of the technology stack.

    
    

• Accounting and Financial Advisory:

  
  

  • Scope: This includes advice on setting up financial controls, preparing audited financial statements, and structuring the reserve asset management framework to meet the 100% backing and segregation requirements.

    
    

  • Cost: HK$1million - HK$3 million.

2. Direct Regulatory Fees

These are the fees paid directly to the Hong Kong Monetary Authority as part of the licensing process.

• Licensing Application Fee:

  
  

  • Scope: A one-time fee to cover the HKMA's administrative costs for processing the application. The specific amount is set by the Stablecoins Ordinance.

    
    

  • Estimated Cost: The law states a specific amount will be set. It could be in the range of hundreds of thousands of Hong Kong dollars.

    
    

• Annual Licensing Fee:

  
  

  • Scope: An annual fee to maintain the license and support the HKMA's ongoing supervisory activities.

    
    

  • Estimated Cost: A recurring annual fee, potentially in the same range as the application fee, or based on the volume of stablecoins issued.

3. Minimum Capital and Operational Costs

While not "fees" in the traditional sense, these are mandatory financial outlays required to obtain and maintain a license.

• Minimum Paid-up Share Capital:

  
  

  • Requirement: HK$25 million (or equivalent in a freely convertible currency). This capital must be in place and cannot be used for the reserve pool.

  
  

  • Note: This is a significant capital commitment that a prospective issuer must be prepared to make.

    
    

• Liquid Capital Requirement:

  
  

  • Requirement: Sufficient liquid capital to cover at least 12 months of operating expenses. This is a buffer to ensure the issuer can sustain its operations.

    
    

  • Note: This is a crucial ongoing cost that must be managed and maintained.

    
    

• Ongoing Operational and Compliance Costs:

  
  

  • Scope: This includes the salaries of a Hong Kong-based senior management team, compliance officers, and IT professionals, as well as the costs of regular audits, AML/CFT compliance systems, and ongoing regulatory reporting.

    
    

  • Estimated Cost: These costs will be ongoing and substantial, likely running into millions of Hong Kong dollars annually.

Summary of Professional and Capital Costs:

Category	Estimated Cost (HKD)
One-time Professional Fees	HK$8 million - HK$18 million
Legal & Regulatory	HK$5 million - HK$10 million
Technology & Cybersecurity	HK$2 million - HK$5 million
Accounting & Financial	HK1 million−HK3 million
Direct Regulatory Fees
Licensing Application Fee	HK$100,000 - HK$500,000
Mandatory Capital Outlays
Minimum Paid-up Share Capital	HK$25 million
Total Estimated Initial Outlay	HK$33.1 million - HK$43.5 million

This breakdown highlights that the cost of entry into Hong Kong's stablecoin market is significant, reflecting the high standards and regulatory scrutiny imposed by the HKMA to ensure financial stability and investor protection.

How Bestar can Help

Securing a stablecoin issuer license in Hong Kong is an intricate process that requires a deep understanding of the regulatory framework, a significant capital commitment, and a meticulous approach to compliance. Professionals are essential in navigating this landscape and maximizing an applicant's chances of success. Here’s a breakdown of how Bestar can help:

1. Professional and Regulatory Advisory

• Interpretation of Regulations: The Hong Kong Monetary Authority (HKMA) has published the Stablecoins Ordinance, along with detailed guidelines and explanatory notes. Bestar can interpret these complex documents to ensure the applicant fully understands the requirements for licensing. This includes understanding the scope of the "regulated stablecoin activity," "fit and proper" criteria, and specific requirements for reserve management.

  
  

• Application Preparation: Professional advisors are crucial in drafting and reviewing the application documents. We help in structuring the business plan, governance framework, and risk management policies to align with the HKMA's expectations. Our legal advisors also assist in preparing a legal opinion to support the claim that stablecoin holders have a right to the reserve assets in the event of insolvency.

  
  

• Engagement with the HKMA: The licensing process often involves direct communication with the HKMA. Legal advisors can manage this communication, ask clarifying questions, and present the application in a clear, compelling manner that addresses the HKMA's concerns. The HKMA encourages preliminary consultations, and Legal advisors can facilitate these initial discussions to help the applicant avoid a premature submission.

  
  

2. Financial and Accounting Advisory

• Capital and Financial Planning: Bestar helps applicants structure their capital to meet the HK$25 million minimum paid-up share capital requirement and the liquid capital requirement (equivalent to 12 months of operating expenses). We also assist in creating a sustainable financial model that projects future costs and revenues.

  
  

• Reserve Asset Management: This is a critical and highly regulated area. Bestar provides expertise in structuring the reserve asset pool to comply with the 100% backing, high-quality asset, and segregation requirements. We also help establish the necessary systems for frequent and transparent reporting and independent audits of the reserve assets.

  
  

• Financial Reporting and Auditing: Licensed issuers must adhere to strict financial reporting standards. Bestar can set up the internal controls and accounting systems to ensure accurate and timely reporting to the HKMA. We also help coordinate with independent auditors who are required to provide attestation reports on the reserve assets.

3. Technology and Cybersecurity Consultancy

• System Design and Implementation: Our technology consultants assist in designing and implementing the technical infrastructure for the stablecoin issuance, including the underlying blockchain, smart contracts, and wallet management systems. We ensure that these systems are robust, secure, and scalable.

  
  

• Cybersecurity Audits: The HKMA places a strong emphasis on cybersecurity and operational resilience. Bestar can conduct independent third-party audits to verify that the issuer's systems meet the highest security standards. This includes assessments of data protection, private key management, and incident response plans.

  
  

• AML/CFT Technology: Compliance with Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) requirements is mandatory. Bestar can help implement blockchain analytics tools and other compliance software to perform customer due diligence (CDD) and transaction monitoring, ensuring the "Travel Rule" and other regulatory mandates are met.

  
  

4. Corporate Services and Human Resources

• Corporate Structuring: Bestar can assist with the legal incorporation of the stablecoin issuer in Hong Kong, a key requirement for the license. We also help establish the corporate governance structure, including the board of directors and senior management.

  
  

• "Fit and Proper" Assessment: The HKMA conducts a rigorous "fit and proper" assessment of an issuer's directors, chief executive, and other key personnel. Bestar can help prepare the necessary documentation and ensure that the key individuals have the relevant knowledge, experience, and integrity required by the regulator.

  
  

• Local Presence: The HKMA generally expects senior management and key personnel to be based in Hong Kong. Bestar can provide guidance on recruitment and relocation to meet this localization requirement.

  
  

In summary, given the high bar set by the HKMA and the multi-faceted nature of the regulatory requirements, engaging Bestar is not just beneficial—it's practically a necessity for any serious applicant aiming to successfully navigate the stablecoin licensing regime in Hong Kong.

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