Spotlight on stablecoins

At aosphere, we are closely following the passage of the GENIUS ACT through the US Senate, which if passed into law would establish a regulatory framework for stablecoins in the United States. However, the US is not the only jurisdiction that is currently seeking to regulate stablecoin activity. A number of other jurisdictions have established or are in the process of establishing a stablecoin regime. In this article, we focus on recent developments in the UK and Hong Kong SAR. 

UK: FCA consultation on stablecoin regulation

On 28 May 2025, the FCA published two consultation papers, one on stablecoin issuance and cryptoasset custody and the other on a prudential regime for cryptoasset firms. This follows on from HM Treasury publishing a draft statutory instrument and policy note in April in relation to the creation of a UK regulatory regime for cryptoassets, including stablecoins (see our previous article for further details).

Stablecoin issuance and cryptoasset custody 

The consultation paper sets out proposed rules and guidance for the activities of issuing a qualifying stablecoin and safeguarding qualifying cryptoassets, including qualifying stablecoins. Under the new regime, qualifying stablecoin issuers established in the UK and firms providing custody of qualifying cryptoassets in the UK or to UK consumers will need to be authorised by the FCA and, once authorised, be subject to ongoing supervision. In addition, qualifying stablecoin issuers and qualifying cryptoasset custodians will remain subject to the UK money laundering regulations.

Scope of the regime

An illustration of how the FCA anticipates firms to be affected by the scope of the HM Treasury legislation and the FCA proposed rules is set out in the consultation paper. In particular, the FCA notes that:

• any firm providing custody services of a qualifying cryptoasset in the UK or to UK consumers will be in scope of the custody regime. This will include ‘overseas stablecoins’ which are not subject to the FCA stablecoin rules; and
• any firm issuing a qualifying stablecoin from an establishment in the UK in any fiat currency will be in scope of the HM Treasury legislation and subject to the FCA issuance rules.

Requirements for qualifying stablecoin issuers

Qualifying stablecoins are defined as cryptoassets which seek or purport to maintain their value with reference to a fiat currency by the issuer holding, or arranging for the holding, of fiat currency or fiat currency and other assets. Qualifying stablecoin issuers will be required to comply with a number of obligations, including in particular to:

• back qualifying stablecoins with secure, liquid assets in a statutory trust for qualifying stablecoin holders. These backing assets should be held with a third-party custodian who is not in the issuer’s group;
• offer redemption of qualifying stablecoins in exchange for money to all holders. Payment orders to transfer redeemed funds to qualifying stablecoin holders should be placed at the latest by the end of the next business day following receipt of a redemption request; and
• clearly disclose their policy for redemption and the composition of backing assets to consumers.

Requirements for qualifying cryptoasset custodians 

Qualifying cryptoasset custodians will be required to comply with a number of obligations, including in particular to:

• segregate client cryptoassets from their own;
• hold those qualifying cryptoassets on behalf of clients in a trust;
• have accurate books and records of clients’ cryptoassets holdings; and
• have adequate controls and governance to protect clients’ cryptoassets holdings.

Prudential regime for cryptoasset firms

The consultation paper sets out proposed prudential rules and guidance for issuing qualifying stablecoins and the safeguarding of qualifying cryptoassets. In particular, it covers:

• own funds - definition and composition of capital;
• own funds requirements; 
• liquid assets requirements; and
• proposals for monitoring and control of concentration risk.

Next steps 

The consultation papers are open for comments until 31 July 2025. The FCA will publish final rules in 2026. In relation to stablecoins in particular, the FCA is intending to work closely with the Bank of England on the regime to ensure a clear pathway in regulation for stablecoins and the Bank of England will publish a complementary consultation paper later in 2025. The FCA will also explore adding a specific focus on stablecoins to its innovation services. 

Hong Kong SAR: stablecoins regime enacted

On 21 May 2025, the legislative council (LegCo) of Hong Kong passed the stablecoins bill (the Ordinance) to establish a licensing regime for stablecoins issuers in Hong Kong. The Ordinance was published in the Gazette on 30 May 2025.

Scope of the regime

Under the Ordinance once implemented, a person must not carry on, or hold itself out as carrying on, the following regulated stablecoin activities unless licensed by the HKMA or exempt:

• issuing a specified stablecoin in Hong Kong in the course of business; or
• issuing a specified stablecoin outside Hong Kong in the course of business and such stablecoin purports to maintain a stable value with reference (whether wholly or partly) to Hong Kong dollars.

The HKMA is able to specify further regulated stablecoin activities and specify that a person (or class or persons) is exempt from the licensing requirement. The Stablecoin Ordinance also allows the HKMA to designate an entity as a designated stablecoin entity if it carries on a business outside Hong Kong of issuing specified stablecoins (provided such activity is not prohibited regulated stablecoin activity) or provides services to a stablecoin payment system where such activity is material to the monetary or financial stability of Hong Kong or functioning of Hong Kong as an international financial centre or significant public interest is involved.

Stablecoin is defined in the Ordinance as a cryptographically secured digital representation of value with various characteristics (e.g. expressed as a unit of account or store of economic value, used as a medium of exchange, can be transferred electronically and is operated on a distributed ledger etc.) and excludes a digital representation of value that is issued by a central bank or government entity or similar or constitutes certain instruments regulated under existing law such as a security, futures contract or deposit.

A specified stablecoin is a stablecoin that:

1. purports to maintain a stable value with reference wholly to: (i) one or more official currencies; (ii) one or more units of account specified by the HKMA; (iii) one or more stores of economic value specified by the HKMA; or (iv) a combination of any 2 or more of (i), (ii) or (iii); or 
2. is a digital representation of value or value of a class specified by the HKMA.

The Bill also regulates the offering of specified stablecoins. A person may only offer or hold itself out as offering specified stablecoins if:

• where the issue is authorised by a licence, the person is a permitted offeror (a stablecoin issuer licensee, a licensed virtual asset trading platform, a payments or stored value facility licensee, a corporation licensed under the SFO for type 1 regulated activity or an authorised institution);
• where the issue is not authorised by a licence (and is not prohibited regulated stablecoin activity), the person is a permitted offeror and the recipient of the offer is a person specified by the HKMA; or
• the person has been exempted by the HKMA.

A person will be regarded as “holding out” as carrying on regulated stablecoin activity or offering specified stablecoins if the person actively markets in Hong Kong or elsewhere to the public that it carries on or purports to carry on activity that would, if carried on in Hong Kong, constitute regulated stablecoin activity or the offering of specified stablecoin. The concept of holding out even applies where marketing is carried out on the person’s behalf and whether the activity marketed is carried on or not.

Certain activities advertising a person as carrying on regulated stablecoin activity or offering specified stablecoins are also prohibited where the person conducting the advertising knows that the relevant activity/person being advertised is not licensed, permitted or exempt (subject to certain exclusions e.g. for persons that do not exercise control over the contents of advertisements). The Ordinance also contains provisions related to fraud and deception in relation to specified stablecoin transactions and inducing others to enter into agreement involving specified stablecoin.

Licensing and enforcement

The Ordinance contains provisions on licensing, including who can apply for a licence, applicable minimum licensing criteria and fees. With respect to the minimum licensing criteria, on 26 May 2025, the HKMA published two consultation papers, one on draft guidelines on minimum licensing criteria for licensed stablecoin issuers and one on AML/CFT requirements. The consultations set out guidance on the HKMA’s expectations with regard to the minimum licensing criteria set out in the Ordinance, including with respect to:

• reserved assets;
• issuance, distribution and redemption policies and requirements;
• requirements relating to business activities and financial resources;
• detailed requirements for risk management frameworks;
• corporate governance and business practices and conduct requirements; and
• requirements to implement appropriate and effective AML/CFT policies, procedures and controls to mitigate ML/TF risks associated with stablecoin business operations.

The Ordinance also contains penalties (including fines/criminal sanctions) for a person who breaches the requirements as well as penalties for offences related to advertising regulated stablecoin activity/offering of stablecoin.

Next steps 

The Ordinance will come into operation on a day appointed by the Secretary for Financial Services and the Treasury by notice published in the Gazette. The government’s press release  welcoming the passing of the bill by LegCo notes that it is expected to come into effect this year. The Ordinance also contains transitional provisions for entities carrying on regulated stablecoin activities before the commencement date. Such entities can continue to carry out such activity:

• for up to 6 months provided that they make a licence application and the HKMA acknowledges receipt within the first 3 months; and
• after the 6 month-period where the HKMA grants a provisional licence within the first 6 months (which shall cease once a licence is granted or the application is withdrawn or refused or a rejection notice is given).

An existing entity that does not make such a provisional licence application or that makes an application which is rejected, withdrawn or refused enters a "closing down period" and may only carry on or hold itself out as carrying on regulated stablecoin activity solely for the purpose of closing down the business connected with such activity.