Hong Kong’s Stablecoin Licensing Regime Launches August 2025 with Stringent AML/CFT Controls

Hong Kong is set to enter a new era of digital asset regulation as it launches its landmark licensing regime for stablecoin issuers on 1 August 2025.

The new framework, underpinned by robust anti-money laundering (AML) and counter-financing of terrorism (CFT) rules, signals the city’s ambition to become a leading hub for regulated digital finance. By requiring all entities issuing or marketing stablecoins in the city to secure a license from the Hong Kong Monetary Authority (HKMA), regulators aim to strengthen oversight and mitigate financial crime risks in a rapidly evolving sector.

The new framework stems from the Stablecoins Ordinance, which was officially gazetted earlier this year. Under the ordinance, stablecoin issuers targeting Hong Kong residents must be licensed by the HKMA. This measure follows a multi-year consultation and policy development effort designed to address concerns around the rapid growth of stablecoins and their potential to facilitate money laundering, terrorism financing, and fraud.

“Unchecked stablecoin activity could heighten money laundering, terrorism financing, and fraud risks,” regulators warned during legislative consultations. The regime, now formalised, introduces specific requirements governing who can issue stablecoins, the design and operation of stablecoin systems, and what steps issuers must take to manage associated financial crime risks.

At the core of Hong Kong’s approach is a set of strict AML/CFT obligations, aligned with international best practices. The Guideline on Anti-Money Laundering and Counter-Financing of Terrorism for Licensed Stablecoin Issuers reflects the FATF Recommendations and adapts Hong Kong’s AML laws to fit the nuances of digital assets.

Issuers will need to implement comprehensive customer due diligence, maintain ongoing transaction monitoring, and ensure effective suspicious transaction reporting.

Special emphasis is placed on adopting risk-based procedures, a key element in tailoring AML efforts to the characteristics of stablecoin systems, which often feature rapid settlement times, global reach, and programmable functions.

Issuers are now obligated to put in place systems that detect high-risk activities specific to virtual assets—such as layering through multiple wallets, use of mixers or tumblers, or transactions routed through high-risk exchanges.

The rules also go beyond FATF’s guidelines by mandating independent audits, long-term record-keeping, and clear senior management accountability. Issuers must keep detailed records of wallet holders and beneficial ownership data for at least six years.

“Licensed issuers are now treated akin to financial institutions,” the HKMA explained, “with the same regulatory expectations on risk management, employee training, and escalation of suspected illicit activity to the Joint Financial Intelligence Unit.”

Importantly, pseudonymous or anonymous issuance of stablecoins is banned. All redemption or withdrawal mechanisms must include robust KYC controls. Furthermore, enhanced due diligence is required for higher-risk activity—such as large cross-border transactions, engagement with unhosted wallets, or dealings with jurisdictions flagged for AML deficiencies.

For entities applying for a license, the Explanatory Note on Licensing of Stablecoin Issuers provides detailed procedural guidance. The process requires applicants to demonstrate sound governance, designate fit-and-proper directors, and appoint a dedicated compliance officer to oversee AML/CFT adherence.

Applicants must also prove their business model is transparent and that their systems can detect and report suspicious transactions in real-time. They are required to fully back stablecoins with approved reserve assets, and provide regular audit disclosures.

The HKMA places a high bar on cybersecurity and incident response protocols, requiring secure wallet management and clear systems for responding to cyber risks. Regardless of the stablecoin’s structure—fiat-backed, commodity-linked, or algorithmic—issuers must provide full design documentation and ensure regulatory transparency.

Transitional measures apply to operators currently active in Hong Kong. They must contact the HKMA and begin the licensing process before continuing operations post-deadline. Even before licenses are granted, such firms must demonstrate compliance with interim risk controls. “Licensing will be an ongoing process,” the HKMA emphasized, “and early applications are encouraged for those ready to meet the regulatory expectations.”

The regime also introduces criminal and administrative penalties for non-compliance. It is now an offence to issue or market stablecoins without proper HKMA authorization.

Making false claims of being licensed can lead to both criminal charges and regulatory sanctions. Authorities encourage the public to verify license status through the HKMA’s official register and remain cautious when engaging with unlicensed stablecoin products.

For market participants, the new rules bring both challenges and strategic opportunities.

While compliance costs may increase, particularly for international issuers, regulatory clarity may enhance legitimacy and facilitate broader institutional adoption.

“From a risk management perspective,” regulators noted, “the regime imposes clear obligations to build strong AML/CFT frameworks from the ground up.” This includes advanced transaction monitoring, wallet analytics, and real-time risk detection.

Financial institutions that service stablecoin issuers must now enhance their own due diligence to ensure compliance.

Fintech firms and crypto businesses that invest early in compliance infrastructure—such as automated screening, machine learning anomaly detection, and KYC/KYB systems—are likely to enjoy a smoother licensing path and competitive advantage.

Still, the heightened bar may result in market consolidation, pushing smaller or underprepared operators out. Some global issuers may also choose to geo-block Hong Kong residents to avoid the jurisdiction altogether, impacting cross-border access for users.

On the consumer side, the new framework introduces key protections. It requires full transparency on reserve assets, regular audits, and real-time redemption channels—addressing past failures in unregulated stablecoin models. Issuers are also barred from advertising their products as “regulated” or “licensed” unless formally listed by the HKMA, a move aimed at curbing misleading marketing and investor confusion.

Looking ahead, the rollout of the licensing regime marks a defining moment for digital asset oversight in Asia. With no licenses yet issued, early decisions by the HKMA—whether approvals or enforcement actions—will be closely watched. These first steps will set the tone for compliance culture and signal Hong Kong’s commitment to strict supervision.

As the digital asset landscape evolves, continued regulatory engagement, alignment with global standards, and investment in supervisory technology will be essential. Market participants will need to dedicate resources to technology, compliance, and governance in order to meet Hong Kong’s expectations.

With this new regulatory blueprint, Hong Kong may soon be positioned as a regional leader in regulated stablecoin issuance. By balancing financial innovation with uncompromising risk controls, the city is sending a clear message: the future of digital finance in Hong Kong is licensed, accountable, and closely supervised. 

By fLEXI tEAM