In June 2023, the licensing system for Virtual Asset Service Providers (VASP) in Hong Kong officially came into effect, marking a solid step forward in its virtual asset regulatory framework. The "Stablecoin Regulation Draft" (the "Regulation") was passed by the Legislative Council on May 21, 2025. Subsequently, to further implement the requirements of the Regulation, the Hong Kong Monetary Authority (HKMA) released two important consultation documents on May 26, 2025, providing detailed regulatory guidelines for stablecoin issuers: the "Regulatory Guidelines Draft" (hereinafter referred to as the "Regulatory Guidelines") and the "Consultation Document on Anti-Money Laundering and Counter-Terrorist Financing Guidelines" (hereinafter referred to as the "AML Consultation Document"). These documents cover relevant regulatory guidelines and consultations on anti-money laundering and counter-terrorist financing. This has generated significant reactions in the market, especially among various industries eagerly anticipating Web3.

Stablecoins, as a bridge connecting traditional finance and the crypto world, are undeniably important. However, the past collapse of Luna/UST and the market turmoil it caused still haunt many, exposing the significant risks of algorithmic stablecoins. Even the largest dollar stablecoin by market share, USDT (Tether), has faced multiple market doubts and regulatory scrutiny regarding the transparency and adequacy of its reserve assets. These events highlight the urgency and necessity of effective regulation for stablecoins.

The stablecoin regulatory framework launched in Hong Kong aims to provide a clear and robust regulatory environment for the issuance and operation of stablecoins through a defined licensing system, strict reserve asset management requirements, a sound risk management framework, and comprehensive investor protection measures. This is intended to attract responsible innovators, enhance market confidence, and solidify Hong Kong's position as a leading global virtual asset center.

For institutions intending to issue stablecoins in Hong Kong, a deep understanding of these regulatory requirements and proactive compliance preparations will be key to their success. This article will combine the latest Regulation, Regulatory Guidelines, and AML Consultation Document to provide potential applicants with a comprehensive "Guide to Applying for a Stablecoin License in Hong Kong."

1. Overview of Core Conditions: The "Hard Indicators" to Become a Licensed Stablecoin Issuer in Hong Kong

According to the Regulatory Guidelines, applicants for a Hong Kong stablecoin license (officially referred to as the "Stablecoin Issuer License") must meet a series of strict core conditions. These conditions form the basis for regulatory authorities to assess whether the applicant has the capability, resources, and integrity to operate stablecoin businesses safely and soundly. In summary, they mainly include the following seven aspects:

1. Sufficient Financial Resources: Ensure that the issuer has adequate capital strength to cope with operational risks and potential losses.
2. Robust Reserve Asset Management: Ensure that the stablecoin is supported by sufficient, high-quality, and highly liquid assets, and that reserve assets are properly safeguarded and segregated.
3. Sound Issuance, Redemption, and Distribution Mechanisms: Ensure that the issuance and redemption processes of the stablecoin are efficient, fair, and transparent, and that distribution channels are properly managed.
4. Strict Risk Management Framework: Ensure that the issuer can identify, assess, monitor, and manage various risks associated with its business, including technological risks, operational risks, market risks, liquidity risks, and legal compliance risks.
5. Comprehensive Corporate Governance: Ensure that the issuer has a sound governance structure, a competent management team, and effective internal control mechanisms.
6. Compliant Business Operations and Conduct: Ensure that the issuer operates in an honest, fair, and transparent manner, and adequately protects user data and rights.
7. Effective Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) Measures: Ensure that the issuer strictly complies with Hong Kong's AML/CFT regulations and effectively prevents its stablecoin from being used for illegal activities.

2. Detailed Explanation of Core Conditions and Practical Challenges

1. Sufficient Financial Resources

Core Requirement: Minimum Paid-up Share Capital

According to the Regulatory Guidelines, "An applicant for a stablecoin issuer licence must have a minimum paid-up share capital of HK$25 million, or such higher amount as the Monetary Authority may specify, having regard to the scale and nature of the applicant’s proposed operations." The applicant must have a minimum paid-up share capital of HK$25 million, or a higher amount as specified by the Monetary Authority based on the scale and nature of the applicant's proposed operations.

While HK$25 million is a clear threshold, the Monetary Authority will conduct a comprehensive assessment, considering the applicant's business model, risk exposure, expected issuance scale, and other factors, and may require a higher capital amount. The issuer should be prepared to demonstrate that its capital level is sufficient to cover potential risks.

This portion of the capital is typically required to be earmarked specifically for supporting the operation and risk mitigation of the stablecoin business and cannot be arbitrarily diverted to unrelated businesses or shareholder distributions. After obtaining the license, the issuer must continue to meet capital adequacy requirements and regularly report its capital status to the Monetary Authority. This may mean that capital levels need to be adjusted dynamically based on business development.

2. Robust Reserve Asset Management

This is the core of stablecoin regulation and the part most closely watched by the market.

The core requirements for initial asset management consist of six points:

1. Full Backing and Appropriate Over-collateralization;
2. Scope and Composition of Reserve Assets;
3. Referenced Currency and Consistency of Reserve Assets;
4. Segregation and Safekeeping;
5. Non-interest Bearing on Stablecoins;
6. Disclosure and Reporting on Reserve Assets.

1) Full Backing and Appropriate Over-collateralization

According to the Regulatory Guidelines, "A licensed stablecoin issuer must ensure that its stablecoins are at all times fully backed by a pool of high-quality and highly liquid reserve assets. The Monetary Authority may also require an appropriate level of over-collateralization depending on the risk profile of the reserve assets." A licensed stablecoin issuer must ensure that its stablecoins are always fully backed by a pool of high-quality and highly liquid reserve assets. The Monetary Authority may also require an appropriate level of over-collateralization depending on the risk profile of the reserve assets. Every word in this statement is crucial.

"Fully backed" is the baseline, meaning that the value of the reserve assets must never be less than the total value of the stablecoins in circulation. The term "appropriate" in "appropriate over-collateralization" is noteworthy. What constitutes "appropriate" does not have a one-size-fits-all standard; in fact, it is difficult for regulatory authorities to establish a uniform standard at this stage. The Monetary Authority will decide whether and how much over-collateralization is needed based on the volatility, liquidity of the reserve assets, and the issuer's own risk management capabilities. This means that issuers need to communicate adequately with the Monetary Authority and be prepared to adjust their reserve levels dynamically according to regulatory requirements.

(1) Scope and Composition of Reserve Assets

According to the Regulatory Guidelines, "Reserve assets must predominantly consist of high-quality liquid assets (HQLA) such as short-term bank deposits with authorized institutions in Hong Kong, short-term government securities with a satisfactory credit rating, or other assets as may be accepted by the Monetary Authority on a case-by-case basis. Algorithmic stablecoins or stablecoins backed by other virtual assets are generally not acceptable." Reserve assets must primarily consist of high-quality liquid assets (HQLA), such as short-term bank deposits with authorized institutions in Hong Kong, short-term government securities with a satisfactory credit rating, or other types of assets that the Monetary Authority may accept on a case-by-case basis. Algorithmic stablecoins or stablecoins backed by other virtual assets are generally not accepted.

The regulatory authority's conservative attitude towards reserve assets is very clear, prioritizing bank deposits and short-term government bonds with high credit ratings.

For the CNH stablecoin and gold-backed stablecoin, which are of great interest to many in the market, it is important to clarify that while the Regulatory Guidelines leave room for "other types of assets accepted by the Monetary Authority," applicants for such innovative assets must prepare extremely detailed and persuasive documentation to demonstrate that their liquidity assurance (especially under stress scenarios), price volatility management mechanisms (such as effective hedging strategies), valuation transparency and reliability, and custody security are at least on par with, if not superior to, the high liquidity, low-risk assets explicitly listed in the Regulatory Guidelines. We understand that the Monetary Authority takes a very cautious approach to such innovations, and the approval process will be longer and stricter.

For gold stablecoin applicants, one path worth exploring is to consider collaborating with local licensed financial institutions in Hong Kong (such as banks or asset management companies) to use their issued gold ETFs traded on the Hong Kong Stock Exchange as the primary reserve asset. This may be easier to gain regulatory recognition in terms of liquidity, valuation, and custody compared to directly holding physical gold, as ETFs are already subject to a certain level of regulation. **Existing compliance frameworks and reserve proof mechanisms of gold stablecoins like *PAX Gold (PAXG)* can be referenced, but it must be clearly understood that the Hong Kong Regulatory Guidelines may have stricter definitions and requirements for ‘high-quality liquid assets’ and cannot simply adopt practices from other jurisdictions.**

CNH stablecoin applicants should pay special attention to the fact that reserve assets (CNH deposits or high-quality CNH bonds) must be held in qualified custodial banks located in Hong Kong or major offshore RMB centers (such as Singapore, which must be recognized by the Monetary Authority). It must be demonstrated to the Monetary Authority that sufficient CNH liquidity contingency arrangements are in place, such as signing standby credit lines or liquidity support agreements with one or more banks capable of CNH clearing, to address large-scale redemptions or market liquidity strains. Even when pegged to CNH, it is necessary to explain how to manage the potential exchange rate fluctuation risks between CNH and other major currencies (such as HKD and USD), especially in extreme situations like capital controls or market interventions.

(2) Referenced Currency and Consistency of Reserve Assets

According to the Regulation, "Unless with the prior written approval of the Monetary Authority, a specified reserve asset pool must be held in the same reference asset as the specified stablecoin to which the pool relates." Unless prior written approval is obtained from the Monetary Authority, the specified reserve asset pool must be held in the same reference asset as the specified stablecoin it relates to.

If issuing a HKD stablecoin, the reserve assets should, in principle, also be HKD assets (such as HKD deposits). This is to avoid currency mismatch risks and ensure that redemptions can be made in full in HKD at all times. Hong Kong's linked exchange rate system also provides a relatively stable exchange rate environment for HKD stablecoins.

If one wishes to issue a USD stablecoin but the reserve assets include a large amount of HKD assets, or to issue a RMB stablecoin but the reserve assets are in USD, this constitutes a currency mismatch. In such cases, unless prior written approval is obtained from the Monetary Authority, this is not permitted. Even if approved, the issuer must demonstrate to the Monetary Authority its ability to manage the resulting exchange rate risks and may be required to have higher over-collateralization. The Monetary Authority will be very cautious in approving such requests, as this directly relates to the "stability" of the stablecoin.

(3) Segregation and Safekeeping

According to the Regulatory Guidelines, "Reserve assets must be segregated from the issuer’s own assets and the assets of other stablecoin arrangements, and held with a qualified custodian. The custodial arrangements must ensure that the reserve assets are protected in the event of the issuer’s insolvency." Reserve assets must be segregated from the issuer's own assets and the assets of other stablecoin arrangements and held by a qualified custodian. The custodial arrangements must ensure that the reserve assets are protected in the event of the issuer's insolvency.

For many Web3 startups, their existing corporate structures may not be optimized for 'bankruptcy isolation.' Achieving effective bankruptcy isolation often means establishing a separate special purpose vehicle (SPV) solely for holding reserve assets and creating a comprehensive trust arrangement. This may involve complex legal structuring and corporate restructuring, requiring advance planning and associated costs. Finding and contracting with a qualified custodian that meets the Monetary Authority's requirements (usually a licensed bank or a trust company with specific qualifications) may pose negotiation difficulties and cost pressures, especially for issuers without traditional financial backgrounds. The terms of the custodial agreement also need to be carefully reviewed to ensure compliance with regulatory requirements.

(4) Non-interest Bearing on Stablecoins

According to the Regulatory Guidelines, "A licensed stablecoin issuer must not pay any interest or similar return to stablecoin holders on their stablecoin holdings." A licensed stablecoin issuer must not pay any interest or similar returns to stablecoin holders based on their stablecoin holdings.

The provision to avoid any form of "quasi-interest" arrangements is to clarify the payment tool nature of stablecoins, rather than treating them as investment products. Any actions that indirectly pay returns to stablecoin holders through airdrops, staking rewards, etc., may be seen as violations of this provision, thus triggering regulatory risks. Issuers need to carefully examine their business models to avoid crossing this red line.

(5) Disclosure and Reporting on Reserve Assets

According to the Regulatory Guidelines, "A licensed stablecoin issuer must provide regular and timely public disclosures on its reserve assets, including their composition, valuation, and the reports of independent auditors. It must also submit periodic reports to the Monetary Authority." A licensed stablecoin issuer must provide regular and timely public disclosures regarding its reserve assets, including their composition, valuation, and reports from independent auditors. It must also submit periodic reports to the Monetary Authority.

Obtaining a license is by no means a one-time effort. Issuers must be acutely aware that continuously meeting the frequent (daily, weekly, monthly, annually) and detailed disclosure and reporting requirements outlined in the Regulatory Guidelines will incur significant operational costs and compliance pressures. This includes regular verification of reserve assets (usually conducted by recognized accounting firms), annual financial audits, AML/CFT system audits, technical system audits, etc.

The frequency and detail of public disclosures are highly demanding, aimed at ensuring that the public and regulatory authorities can clearly understand the status of reserve assets. If there are anomalies in the reports (for example, if the reserve coverage temporarily falls below 100%, or if the transaction monitoring system detects a large number of suspicious transactions), how to promptly and transparently report to the Monetary Authority and proactively propose effective remedial measures and explanations is crucial. Concealing or delaying reports may lead to severe regulatory penalties. The Monetary Authority has the right to conduct on-site inspections and temporary inquiries, and issuers need to be prepared for scrutiny at all times, ensuring that all records are complete and accurate.

3. Sound Issuance, Redemption, and Distribution Mechanisms

The core requirements for sound issuance, redemption, and distribution mechanisms are prudent issuance, efficient redemption at par value, careful distribution, and compliant customer onboarding.

According to the Regulatory Guidelines, "Issuance must be conducted in a prudent manner. Redemption must be processed at par value and in a timely manner (e.g., within T+1 business day). Distribution channels must be carefully selected and monitored. Customer onboarding procedures must comply with AML/CFT requirements." Issuance must be conducted prudently. Redemption must be processed at par value in a timely manner (e.g., within T+1 business day). Distribution channels must be carefully selected and monitored. Customer onboarding procedures must comply with anti-money laundering/counter-terrorist financing requirements.

The operational pressure of T+1 redemption requires issuers to have efficient fund clearing and liquidity management capabilities, placing high demands on both the operational team and technical systems. If stablecoins are distributed through third parties, issuers need to conduct due diligence on distributors and clarify the responsibilities of both parties regarding AML/CFT and customer onboarding. Strict customer due diligence procedures must be enforced during the issuance and redemption of stablecoins in the primary market, which is closely related to AML/CFT requirements.

4. Strict Risk Management Framework

As the most important financial license in the Web3 industry at present, the Monetary Authority has set strict requirements for the risk management framework, with the core being that applicants should have comprehensive risk management policies and procedures that are commensurate with the scale of their business.

According to the Regulatory Guidelines, “A licensed stablecoin issuer must establish and maintain a comprehensive risk management framework, with policies and procedures proportionate to the scale, nature, and complexity of its operations. This includes, but is not limited to, operational risk, technology risk (including cybersecurity and smart contract risk), market risk, liquidity risk, legal and compliance risk, and custody risk.” A licensed stablecoin issuer must establish and maintain a comprehensive risk management framework, with policies and procedures that are commensurate with the scale, nature, and complexity of its operations. This includes, but is not limited to, operational risk, technology risk (including cybersecurity and smart contract risk), market risk, liquidity risk, legal and compliance risk, and custody risk.

For any company in the financial industry, establishing and maintaining a comprehensive risk management framework is not easy, and it is clearly more complex for a financial license in the web3 industry. In simple terms, stablecoin applicants should establish a “three lines of defense.”

First, the first line of defense is the business department, which is the primary responsible party for risk management, responsible for identifying, assessing, and managing risks in daily business activities.

The second line of defense is the independent risk management and compliance function, which should be responsible for formulating risk management policies, monitoring risk conditions, reporting risks to management and the board, and ensuring compliance. The head of risk management typically needs to have many years of risk management experience in financial institutions or regulated virtual asset service providers, familiar with relevant risk measurement models and stress testing methods. Even in Hong Kong, there are not many qualified individuals. The compliance officer (MLRO - Money Laundering Reporting Officer) must have solid AML/CFT knowledge and practical experience, with relevant professional qualifications (such as CAMS) preferred. The Monetary Authority has high requirements for local experience in this position and understanding of the Hong Kong regulatory environment. The independence of the second line of defense is crucial as it should be free from interference from the business department and report directly to the board (or its subordinate risk management committee/audit committee). The appointment, dismissal, and compensation of its head should be decided at the board level to ensure objectivity.

The third line of defense is the independent internal audit department, which is responsible for independently assessing and auditing the effectiveness of risk management and internal controls. The head of internal audit should have an auditing professional background and be familiar with the internal control and auditing processes of financial institutions or technology companies. The independence of the internal audit function is reflected in its direct reporting to the board's audit committee. In terms of staffing, consideration can be given to establishing dedicated internal audit positions, or for smaller institutions, outsourcing this function to qualified independent third-party auditing firms with the Monetary Authority's consent. However, even if outsourced, the ultimate responsibility still lies with the board. Additionally, to strengthen corporate governance and the independence of internal audit, having a sufficient number of independent non-executive directors (INEDs) on the board is crucial, as they typically play key roles in the audit committee and risk management committee. For non-recognized institutions, the guidelines recommend that at least one-third be INEDs.

Implementing internal controls within the company presents many challenges, including technical aspects. For Web3 startups, while the concept of multi-signature is not unfamiliar, meeting regulatory-level security requirements (such as secure environments, offline operations, geographical dispersion, regular rotation, emergency recovery plans, etc.) often requires significant upgrades to their existing IT systems or even redesigning the private key management architecture. This not only involves technical investment but also necessitates establishing strict operational processes and internal control mechanisms. Smart contract audits emphasize continuity; not only must there be an audit before the stablecoin is launched, but any subsequent upgrades and changes must undergo rigorous independent third-party audits to ensure security. If relying on third-party service providers (such as custodians or technology service providers), issuers need to conduct thorough due diligence on them and establish effective ongoing monitoring mechanisms to manage the resulting third-party risks.

5. Sound Corporate Governance

Corporate governance seems to be a well-trodden topic, but in the context of applying for a stablecoin license, its core requirement is a sound governance structure and competent control personnel.

According to the Regulatory Guidelines, “A licensed stablecoin issuer must have a sound corporate governance structure, with clear lines of responsibility and accountability. Its directors and senior management must be fit and proper persons to hold their positions.” A licensed stablecoin issuer must have a sound corporate governance structure, with clear lines of responsibility and accountability. Its directors and senior management must be appropriate persons to hold their positions.

So, what are the standards for “fit and proper” persons? For key positions such as compliance officer (MLRO) and head of risk management, the Monetary Authority typically expects candidates to have experience in the local financial industry in Hong Kong or a deep understanding of Hong Kong financial regulations (especially AML/CFT regulations) and hold relevant professional qualifications (such as Hong Kong lawyer, certified public accountant, CAMS, etc.). Relying entirely on personnel with overseas backgrounds, even if experienced, may face stricter scrutiny regarding their adaptability to the local regulatory environment. For situations involving foreign shareholding or complex parent company structures (for example, controlling a Hong Kong entity through a VIE structure), applicants must be well-prepared to clearly and transparently disclose complete information about the ultimate beneficial ownership (UBO) to the Monetary Authority and explain the commercial rationale of their corporate structure. Any attempts to obscure or hide actual control may cross regulatory red lines. Applicants and their key management personnel need to demonstrate that they have good character, reputation, and financial soundness, with no relevant criminal records or history of regulatory penalties.

Specifically, the profile of key management personnel (KMP) is as follows:

CEO: Typically requires substantial senior management experience in the financial services or fintech sector, a deep understanding of the virtual asset industry, and good business reputation and leadership skills. Previous successful entrepreneurial experience or tenure at well-known institutions would be a plus.

CFO: Must have professional accounting qualifications (such as CPA), be familiar with Hong Kong financial reporting standards, and have experience managing complex financial operations (including reserve asset accounting, fund flow management) and undergoing external audits.

CTO/CISO: Must possess deep professional knowledge and practical experience in virtual asset technology, blockchain security, cybersecurity, private key management, smart contract development, and auditing. Must be able to lead the design and maintenance of a technology architecture and security system that meets regulatory requirements.

MLRO: As detailed in the aforementioned “three lines of defense,” emphasizes AML/CFT professional experience and local knowledge.

CRO (Chief Risk Officer, if established): Should have comprehensive financial risk management experience and be able to establish and lead the second line of defense.

Applicants must anticipate that the Monetary Authority will conduct very thorough background checks on all nominated KMPs, including their past work experience, professional capabilities, integrity records, and financial status. When forming the Hong Kong operational team, it is necessary to have members with international perspectives and innovative capabilities, as well as local professionals who have a deep understanding of the Hong Kong regulatory environment, legal system, and market characteristics. This balance helps facilitate better communication with regulatory authorities and ensures compliant operations locally. A detailed organizational chart must be submitted, clearly defining the responsibilities and reporting lines of each department to ensure that decision-making processes are clear and efficient.

6. Compliance in Business Operations and Conduct

The core requirements for compliance in business operations and conduct are: accurate record-keeping, timely disclosures, protection of personal data, and proper handling of complaints.

According to the Regulatory Guidelines, “A licensed stablecoin issuer must maintain accurate and complete records of its operations. It must provide clear, accurate, and timely information to users. It must comply with personal data protection requirements. It must have effective mechanisms for handling user complaints.” A licensed stablecoin issuer must maintain accurate and complete records of its operations. It must provide clear, accurate, and timely information to users. It must comply with personal data protection requirements. It must have effective mechanisms for handling user complaints.

The Regulatory Guidelines have very high requirements for white papers. It is not merely a technical specification or marketing material, but rather a legally binding business plan and compliance commitment. The white paper must disclose all key information to potential users and regulatory authorities in a clear, accurate, complete, and non-misleading manner, including but not limited to:

1. Detailed information about the issuer (company structure, management team, financial status, etc.)
2. The design mechanism of the stablecoin (pegged assets, technical standards, total issuance, etc.)
3. Detailed arrangements for reserve assets (composition, custody, auditing, valuation methods, etc.)
4. Issuance and redemption mechanisms (processes, fees, timing, restrictions, etc.)
5. Technical details and security measures employed
6. Comprehensive disclosure of risk factors (this is crucial and must be thorough and objective)
7. Overview of AML/CFT measures
8. User rights and complaint handling mechanisms
9. Overview of an orderly exit plan. It is worth noting that any exaggeration, lack of transparency, or deliberate concealment of risks in the white paper may lead to rejection of the application or subsequent regulatory actions.

In addition, the Monetary Authority requires applicants to comply with the requirements of Hong Kong's Personal Data (Privacy) Ordinance, ensuring that the collection, use, storage, and transmission of users' personal data are compliant and legal. It also requires the establishment of clear and convenient complaint channels and ensures that complaints are handled promptly and fairly.

7. Effective Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) Measures

AML/CFT is a crucial aspect of all financial license applications, and it is particularly critical in the application for a stablecoin license.

The AML Consultation Document specifies detailed requirements regarding customer due diligence (CDD), ongoing monitoring, suspicious transaction reporting (STR), sanctions screening, employee training, record-keeping, and more. For example, it addresses risk assessment and mitigation measures for non-custodial wallets and the adoption of a risk-based approach (RBA).

To effectively fulfill the obligations of transaction monitoring and wallet address screening, issuers typically need to procure professional blockchain analysis tools. Mainstream tools available in the market include Chainalysis (such as its KYT product), Elliptic, TRM Labs, Coinfirm, etc. When selecting a tool, considerations should include the range of blockchains covered, the accuracy of the risk scoring model, integration capabilities with existing systems, and service support.

Purchasing AML tools is just the first step. More critically, it is essential to establish accompanying internal operational processes, clear risk escalation and handling mechanisms, provide adequate training for relevant personnel, and include necessary manual review steps. Technical tools are supportive, but the final judgment and decision-making still rely on well-trained professionals.

For interactions with non-custodial wallets, in addition to relying on blockchain analysis tools for risk assessment and monitoring, applicants may also consider explicitly stating risk warnings and user responsibilities in the user agreement, setting stricter limits on transactions with high-risk non-custodial wallets, or conducting additional due diligence, and even refusing to transact with them in extreme cases. It is crucial to present a multi-layered, multi-dimensional risk mitigation plan to the Monetary Authority.

Regarding the monitoring responsibilities for stablecoins circulating in the secondary market, the AML Consultation Document reflects a regulatory exploratory attitude. At this stage, applicants should adhere to the principle of best effort, actively explore and adopt feasible technical solutions (such as ongoing monitoring of suspicious addresses and transaction patterns related to stablecoins) and collaborative mechanisms (such as sharing risk information with other VASPs), and clearly articulate their monitoring scope, methods, limitations, and plans for continuous improvement to the Monetary Authority.

Additionally, the MLRO is at the core of AML/CFT work, and their qualifications and experience are crucial. Applicants should establish comprehensive AML/CFT policies and procedures, including customer identification and verification, risk assessment, transaction monitoring, suspicious transaction reporting, sanctions compliance, employee training, and record-keeping, and ensure that all relevant employees understand the regulatory requirements and internal policies related to AML/CFT.

Application Process, Time Estimates, and Common Misunderstandings

1. Estimated Time for the Application Process:

Based on the experience of applying for similar financial licenses in Hong Kong (such as the Virtual Asset Service Provider (VASP) license) and the complexity and rigor of the stablecoin license, a complete application cycle typically requires 6 to 12 months, or even longer. This process can be roughly divided into:

Ø Pre-communication and preliminary assessment phase (approximately 1-2 months): Initial communication with the Monetary Authority (considering the "Stablecoin Issuer Sandbox") to understand regulatory expectations and self-assess whether the core conditions are basically met.

Ø Formal application material preparation phase (approximately 3-6 months): This is the most time-consuming phase, requiring the preparation of a large number of detailed documents, including a business plan, white paper, risk management framework, compliance manual, technical architecture description, financial forecasts, personnel background information, etc. External professional consultants may need to be hired for assistance.

Ø Monetary Authority review and inquiry phase (approximately 2-4 months or longer): The Monetary Authority will conduct a strict review of the submitted materials and may raise multiple rounds of questions and requests for supplementary materials. The quality and speed of responses will affect the overall progress.

Ø License grant (if approved): The Monetary Authority will formally grant the license only after all conditions are met.

Please note that this is just a rough estimate, and the actual time may vary due to the complexity of the application case, the quality of material preparation, the efficiency of communication with regulatory authorities, and other factors. Additionally, the actual cycle may also change due to the pace of the Monetary Authority's review or policy adjustments.

2. Key Consideration: Self-Assessment of the "Alignment of Business Model with Regulatory Requirements":

When designing the stablecoin business model, applicants should prioritize the principle of 'actively aligning with regulatory requirements' rather than attempting to challenge regulatory boundaries or seek regulatory arbitrage. For example, in selecting reserve assets, priority should be given to high liquidity, low-risk assets explicitly listed in the Regulatory Guidelines (such as short-term bank deposits and high-quality government bonds).

For innovative stablecoins (such as CNH stablecoins and gold-backed stablecoins), as mentioned earlier, it is essential to prepare extremely thorough and rigorous documentation to demonstrate to the Monetary Authority that their risks are fully controllable and that they are not inferior to standard solutions in terms of stability, liquidity, and investor protection. Avoid blindly attempting without adequate preparation.

3. Key Consideration: Preparation of "Exit Mechanism and Consumer Protection" Plans:

Although the Regulatory Guidelines have mentioned this, we strongly recommend that applicants prepare a detailed, clear, and actionable 'Orderly Wind-down Plan' when submitting their application. This plan should specify the circumstances under which the exit mechanism would be triggered (e.g., ongoing losses, insufficient reserves, regulatory requirements, etc.) and how to protect the legitimate rights and interests of stablecoin holders during the exit process, especially their rights to redeem at face value, how to safely and orderly dispose of remaining reserve assets, and how to communicate with users and regulatory authorities. This is not only a regulatory requirement but also an important indicator of the issuer's responsible attitude towards consumers.

4. Common Application Misunderstandings and Key Focus Areas for the Monetary Authority:

Ø Downplaying or avoiding risks: Attempting to cover up or downplay the risks present in the business model, failing to conduct a comprehensive and objective risk assessment and stress testing.

Ø Overemphasizing "decentralization" while neglecting issuer responsibilities: Even with the use of blockchain technology, licensed stablecoin issuers remain centralized responsible entities and must assume core responsibilities such as reserve management, risk control, and compliance operations.

Ø Insufficient understanding and investment in AML/CFT measures: Believing that purchasing a software package is sufficient, while neglecting the importance of supporting system construction, personnel training, and ongoing monitoring.

Ø Mismatch between core team background and intended business: For example, a strong technical team lacking financial compliance experience, or management lacking understanding of virtual asset risks.

Ø Unrealistic or insufficiently justified reserve asset plans: Especially for innovative reserve assets, failing to adequately prove that they meet the requirements of "high quality, high liquidity, and low risk."

Ø Inadequate or insufficiently transparent corporate governance structure: Complex and opaque ownership structures, lack of independence in the board, and absence of internal checks and balances.

Ø White paper content being vague, exaggerated, or containing misleading information.

Ø Lack of proactive and transparent communication with regulatory authorities, or failing to respond promptly and adequately to regulatory inquiries.

Conclusion: The Path of Stablecoins in Hong Kong, Opportunities and Caution, Professionalism and Compliance

The introduction of the Hong Kong Stablecoin Bill and its accompanying guidelines has laid a legal foundation for the compliant development of stablecoins in Hong Kong and set a new benchmark for global virtual asset regulation. For participants in the Web3 industry, this presents both a tremendous opportunity and unprecedented compliance challenges.

Applying for a Hong Kong stablecoin license is a systematic project that requires applicants to possess sufficient financial strength, robust reserve management capabilities, strong technical security guarantees, comprehensive risk management and corporate governance structures, as well as a profound understanding and firm execution of AML/CFT compliance.

As we have analyzed, from the practical implementation of internal controls to the refined staffing of the "three lines of defense"; from the extremely high thresholds for innovative asset approvals to the strict standards for "fit and proper" persons; from the long-term investment in continuous compliance to the in-depth practice of AML/CFT measures; and to clear exit mechanisms and transparent white papers—every aspect tests the applicant's professional capabilities, compliance awareness, and long-term vision.

We strongly recommend interested applicants to:

• Plan early and seek assistance from legal, accounting, and compliance professionals with rich experience in the Web3 industry.
• Adopt a core strategy of "compliance first, controllable risks," and actively embrace regulation.
• Be fully prepared for team building, technical investment, and compliance costs.
• Maintain proactive, transparent, and constructive communication with the Hong Kong Monetary Authority.

The regulatory framework for stablecoins in Hong Kong aims to promote responsible innovation while maintaining financial stability and protecting investors. Only those issuers who truly possess strength, adhere to compliance, and are committed to providing safe and reliable stablecoin products to the market can thrive in this land full of opportunities.

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