On September 17, 2025, the Secretary for Financial Services and the Treasury of Hong Kong, Xu Zhengyu, officially confirmed a significant piece of news during a written explanation of the "Stablecoin Ordinance" at the Legislative Council: mainstream stablecoins such as USDT and USDC will face substantial bans in Hong Kong. According to the latest regulations, stablecoins that do not have a license from the Monetary Authority can only be offered to professional investors, completely excluding retail investors, and all stablecoin transactions must be conducted through five types of "approved providers," effectively cutting off traditional trading channels such as over-the-counter (OTC) and exchange shops. This decision not only ends the gray area of the stablecoin market in Hong Kong but also signals a fundamental change in the landscape of the cryptocurrency market in Hong Kong, with compliant stablecoins becoming a key force in reshaping the market.
I. Stablecoins in Hong Kong Declared: End of the OTC Era
Secretary Xu's response was quite direct, drawing a clear line for the Hong Kong stablecoin market:
OTC and exchange shops banned: OTC and exchange shops can no longer provide stablecoin exchange services to the public. All previous rumors in the market—such as "exchange shops can still secretly exchange USDT"—have been put to rest. The Monetary Authority will continue to monitor stablecoin trading activities in the market, and if any illegal activities are discovered, further actions will be taken based on facts and evidence.
Compliance license is the only channel: In the future, the buying and selling of stablecoins must go through compliant licensed channels. This decision completely ends the gray area of the stablecoin market in Hong Kong.
II. Retail Investors Excluded: USDT and USDC Face Substantial Bans
The logic of the "Stablecoin Ordinance" is clear:
Licensed stablecoins: Only stablecoin issuers with a license from the Hong Kong Monetary Authority can provide stablecoins to retail investors and professional investors.
Non-licensed stablecoins: Unregulated stablecoins can only be offered to professional investors.
The problem arises: USDT and USDC, which are commonly used stablecoins, have not applied for licenses in Hong Kong. Therefore, they automatically fall into the "unregulated" category and can only be sold to professional investors. Retail investors? Forget it. This regulation effectively excludes the vast majority of cryptocurrency users in Hong Kong from the mainstream stablecoin market, as becoming a "professional investor" in Hong Kong requires proof of assets of at least 8 million HKD, a threshold that ordinary investors find difficult to meet.
III. Five Types of "Approved Providers": The "Regular Army" of Stablecoin Trading
The ordinance also delineates a "red line": only five types of "approved providers" can offer stablecoin exchanges:
Licensed stablecoin issuers: Companies that apply for and obtain a license from the Monetary Authority in Hong Kong.
Licensed Virtual Asset Trading Platforms (VATP): Exchanges that obtain a virtual asset trading platform license from the Securities and Futures Commission can provide regulated stablecoin exchange services to both retail and professional investors.
Licensed banks: Licensed banks approved by the Hong Kong Monetary Authority can provide stablecoin exchange, custody, and other services. Recognized payment institutions/e-wallet operators: Similar to Alipay Hong Kong and Octopus, if they obtain regulatory approval, they can engage in stablecoin payments.
Other financial institutions specially approved by the Monetary Authority or the Securities and Futures Commission: For example, trust companies and licensed trust institutions can also be recognized after meeting certain conditions.
This means that street exchange shops, underground OTC, and cryptocurrency dealers will completely exit the historical stage. The Hong Kong stablecoin market will be fully integrated into the regulatory framework of the formal financial system. Xu Zhengyu reminds the public that the Monetary Authority has not yet issued licenses to any stablecoin issuers. The public can only purchase regulated stablecoins from the "approved providers" designated by the Ordinance to be legally protected. If they purchase or hold unregulated stablecoins through informal channels, they must bear the associated risks.
IV. Hong Kong's Choice: Financial Innovation or "Self-Inflicted Wounds"?
Some say that Hong Kong is pursuing "financial innovation" to create a compliant stablecoin center; others complain that this is simply "self-inflicted wounds," keeping USDT/USDC out and effectively slamming the market door shut. After all, without licenses for mainstream stablecoins, retail investors cannot buy them; compliant stablecoins will also find it relatively difficult to integrate into the crypto ecosystem in the short term, and the market will naturally cool down.
In the past, the issuer of USDT was born in Hong Kong and went global. But the current reality is that mainstream stablecoins in Hong Kong are really going to cool off. This decision by Hong Kong represents a choice made between regulatory safety and market vitality, and time will tell whether this is "financial innovation" or "self-inflicted wounds."
V. Market Impact and Future Outlook: Changes in Regional Competitive Landscape
This policy will have a profound impact on the cryptocurrency market in Hong Kong:
Retail investors forced to shift: Retail investors in Hong Kong may need to turn to compliant stablecoins or directly use fiat currency for transactions, significantly changing local trading habits.
Exchanges facing adjustments: Licensed exchanges in Hong Kong will need to adjust their stablecoin strategies, possibly accelerating the development or introduction of compliant stablecoins.
Emergence of new opportunities: For stablecoin issuers willing to comply with Hong Kong's regulatory framework, this presents an opportunity to enter the market. Xu Zhengyu revealed that the stablecoin licensing system will adopt an "invitation system," with limited initial quotas to ensure controllable risks, prioritizing larger, well-compliant financial institutions for pilot participation.
Changes in regional competitive landscape: Competitors such as Singapore and Dubai may benefit from Hong Kong's strict policies, attracting more crypto businesses.
VI. Hong Kong's Strategic Ambitions: RWA and Tokenization of Digital Assets
Despite the tightening of stablecoin regulations, Hong Kong's strategic ambitions in the digital asset space have not diminished.
Continuing to promote the tokenization of financial assets: Following green bonds, the next step will explore tokenized payment methods for ETFs and precious metals.
Optimizing the legal and regulatory framework: The Financial Services and the Treasury Bureau's "Hong Kong Digital Asset Development Policy Declaration 2.0," released in June, states that optimizing the legal and regulatory framework is key to promoting industry development. The government and regulatory agencies will continue to adhere to the principle of "same business, same risk, same rules," focusing on risk and continuously improving a regulatory system that aligns with local realities and international standards, providing a healthy, responsible, and sustainable development foundation for the digital asset market.
Conclusion:
Hong Kong's official "ban" on retail trading of USDT and USDC marks a decisive step in its stablecoin regulation. This policy will fundamentally change the ecology of the cryptocurrency market in Hong Kong, ending the OTC era and creating space for the rise of compliant stablecoins. Although it may face market pain and regional competitive challenges in the short term, Hong Kong's move aims to establish a safer, more transparent, and regulated digital asset market. Time will tell whether Hong Kong can carve out a unique path of financial innovation in the Web3 era with its prudent and firm regulatory strategy.
Related Reading: Hong Kong Implements Stablecoin Issuer System, Promotes Tokenized Gold Investment Products
Original Article: “Hong Kong Officially Bans Retail Trading of USDT and USDC, Marking the End of the OTC Era”
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