Licensing Countdown: A Comprehensive Overview of Hong Kong's Stablecoin and Virtual Asset Trading Regulatory Framework

On February 25, 2026, Hong Kong SAR Financial Secretary Paul Chan delivered the 2026–2027 Budget Speech, signaling two key developments: the licensing regime for fiat-backed stablecoin issuers has been implemented, with the first licenses to be issued in March; simultaneously, the government will submit the draft Digital Asset Policy Ordinance within the year to establish a comprehensive licensing system for virtual asset trading and custody service providers.

This marks Hong Kong’s final push in building a regulatory closed-loop for digital assets. Starting from stablecoins as the “payment cornerstone,” and expanding to cover trading and custody, Hong Kong aims to create an enforceable regulatory framework for the global digital asset industry under the principle of “same activity, same risk, same regulation.”

Overview of the Event: Timeline Set, Regulatory Framework Complete

Paul Chan explicitly stated in the budget that Hong Kong has implemented a licensing regime for fiat-backed stablecoin issuers. Regulatory authorities will assist licensed issuers in exploring diverse application scenarios within a compliant and risk-controlled framework. Meanwhile, the draft ordinance to be submitted this year will extend regulation from existing virtual asset trading platforms to include over-the-counter (OTC) digital asset traders and custody providers.

This means Hong Kong’s virtual asset regulation will no longer be limited to secondary market trading but will extend to the issuance of stablecoins at the payment level and to secure custody at the asset level, forming a complete regulatory closed-loop covering both fund and asset sides.

Background and Timeline

Hong Kong’s digital asset regulation follows a clear evolutionary path, with a pace and intensity considered aggressive among major financial centers:

• June 2023: Mandatory licensing for Virtual Asset Trading Platforms (VATPs). All centralized exchanges operating in Hong Kong or targeting Hong Kong investors must be licensed or applying for a license.
• August 2025: The Stablecoin Ordinance takes effect, establishing a mandatory licensing regime for fiat-backed stablecoin issuers under the Hong Kong Monetary Authority (HKMA). Non-compliant issuers must submit applications by the end of October 2025.
• December 2025: The Financial Services and the Treasury Bureau (FSTB) and the Securities and Futures Commission (SFC) release a consultation summary, confirming the creation of new license categories for trading, consulting, asset management, and custody of non-securities virtual assets.
• February 2026: The Budget Speech officially sets the tone: stablecoin licenses to be issued in March, with comprehensive legislation covering trading and custody to be submitted within the year.

Data and Structural Analysis: Upcoming Compliance Thresholds

Based on previous consultation documents and industry analysis, the upcoming stablecoin licenses and the legislation for trading/custody licenses will impose strict entry requirements, directly filtering out many non-compliant entities.

For stablecoin issuers, sufficient financial resources are mandatory. Referencing the Anti-Money Laundering Ordinance (AMLO) requirements for virtual asset service providers, future licensed entities must maintain high standards for customer asset protection. For example, licensed virtual asset trading platforms are required to store 98% of customer assets in cold wallets, implement multi-signature protocols, and undergo quarterly reserve audits by approved auditors. For stablecoin issuers, this means their reserve management, auditing, and disclosure must meet the transparency standards of traditional banks.

In trading and custody, new legislation will introduce licenses for non-securities virtual assets—namely, virtual asset traders and custodians. Custodians must have a minimum paid-up capital of HKD 10 million and demonstrate the ability to securely manage private keys. This indicates that future compliant custody services will be capital- and technology-intensive, making it difficult for small firms to participate independently.

Public Opinion and Perspectives

Market reactions to Hong Kong’s “combination punch” regulatory approach mainly fall into two mainstream views:

• Optimists: believe that once regulation is implemented, the “bad news” is over. A clear fiat-backed stablecoin issuance regime will attract traditional financial institutions (banks, brokerages) to enter compliantly. The SFC’s plan to establish a “Digital Asset Accelerator” and to allow more diversified products and services for professional investors is seen as a prelude to increased liquidity.
• Cautious: worry that high compliance standards may exclude small and innovative players, leading to market monopolization by a few licensed giants. The strict requirements—such as 98% cold storage and insurance—though protecting assets, could significantly raise operational costs, potentially passed on to users.

Reality Check on the Narrative

The grand narrative of “Hong Kong becoming a global digital asset hub” is being filled in by concrete legal provisions and timelines. It’s important to distinguish between:

• Facts: issuance of the first stablecoin licenses in March, submission of the draft ordinance within the year—confirmed by the Financial Secretary’s schedule.
• Policy: the goal to “strengthen Hong Kong’s position as an international financial center.”
• Speculation: market expectations that the first licensees may include traditional banks or large fintech groups, though official lists are yet to be announced. The influx of “massive capital” depends on subsequent sandbox developments, product diversity, and the global macro liquidity environment.

Industry Impact Analysis

Hong Kong’s legislative push will have three main structural impacts on the crypto industry:

1. Compliance costs as a core competitive advantage. High capital requirements, professional insurance, and regular reserve audits—potentially costing millions of HKD—will create high barriers to entry. This compels industry players to shift from “technology-driven” to “compliance-driven” strategies.
2. Connecting fiat and digital assets’ “on-ramp.” Licensed stablecoin issuers will serve as regulated bridges between banks and crypto markets. When fiat-backed stablecoins are issued by licensed entities and backed by bank-held reserves, cooperation between traditional finance and crypto sectors will become smoother, reducing systemic risks.
3. Establishing custody standards to attract institutional funds. Clear requirements for private key management, asset segregation, and audits are prerequisites for pension funds, family offices, and other large traditional institutions to allocate assets in digital form. Hong Kong’s separate custody legislation effectively lays the groundwork for larger-scale compliant capital inflows.

Scenario Evolution and Future Outlook

Based on current information, Hong Kong’s digital asset regulation may evolve along two main paths:

Scenario 1: “Boutique” market under compliance intensification (benchmark scenario)

High barriers lead many small exchanges and stablecoin projects to exit Hong Kong or move offshore. Licensed entities will focus on serving high-net-worth individuals and institutional clients, with product innovation centered on RWA tokenization, structured notes, and other compliant assets. Trading volume may shrink short-term, but liquidity, transparency, and security will improve significantly. Hong Kong becomes an “exhibition hall” of compliant assets in Asia.

Scenario 2: Cross-border arbitrage and regulatory game-playing (risk scenario)

Due to the lack of unified global standards (e.g., EU’s MiCA, Singapore, Dubai), Hong Kong’s strict custody and reserve requirements may make local compliant products less competitive cost-wise. Some capital may flow to regions with more flexible regulation, risking Hong Kong becoming a “regulatory island.” To counter this, Hong Kong must accelerate connectivity with mainland China and international markets, expanding its capital pool to offset high compliance costs.

Conclusion

With the issuance of stablecoin licenses in March and the completion of legislation within the year, Hong Kong is turning its commitment to digital assets into enforceable laws. For industry participants, the key question is no longer “Will Hong Kong embrace Web3?” but “How to find your niche within the new compliance landscape?” This is both a challenge and a necessary step toward industry maturity.