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Hong Kong Stablecoin Law’s Strict Client Identity Rules Raise Industry Concerns

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Hong Kong’s newly enacted stablecoin ordinance, effective August 1, places the city among the first global markets to regulate fiat-backed stablecoin issuers, aiming to position Hong Kong as a leading virtual asset hub. However, the stringent customer identification (KYC) requirements embedded in the law are causing apprehension within the industry.

The regulation mandates stablecoin issuers to verify the identity of every single holder, a move that challenges the cryptocurrency market’s traditional emphasis on privacy and anonymity. Industry insiders warn that this high level of scrutiny could deter users and impede widespread adoption of stablecoins in Hong Kong.

Bo Tang, head of the HKUST Institute for Financial Research, highlighted the potential drawbacks, noting that businesses using Hong Kong-regulated stablecoins for cross-border payments might force recipients to open Hong Kong-based accounts solely to complete KYC checks. This real-name requirement could strip stablecoins of their usual advantages over traditional payments, such as efficiency and privacy.

The Hong Kong Monetary Authority (HKMA), which regulates the sector, defends the measures as crucial to combating money laundering and terrorism financing, reflecting a cautious approach during the industry’s early regulatory phase.

Compared to other regions, Hong Kong’s KYC rules are reportedly tougher than the U.S.’s new stablecoin legislation, the GENIUS Act, which also came into effect recently. Ricky Xie, a crypto trader based in Hong Kong, remarked that many overseas users might opt out due to these strict rules, potentially excluding users who rely on unhosted, anonymous wallets.

HKMA expects to issue only a small number of stablecoin licenses starting early next year, with primary users likely to be mainland Chinese firms employing stablecoins for cross-border trade and remittances. Market observers also suggest that the rigorous regulation might be designed to temper speculative enthusiasm around stablecoin investments in Hong Kong.

Following the ordinance’s enforcement, several stablecoin-related concept stocks, including ZhongAn Online and Bright Smart Securities & Commodities, saw significant declines after previous gains.

Shanghai Regulator Considers Policy Responses to Stablecoins and Digital Currencies, Signaling Shift in China’s Crypto Stance

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A regulatory body in Shanghai convened a meeting this week with local government officials to discuss strategic policy responses toward stablecoins and cryptocurrencies, marking a notable shift for China, where crypto trading remains banned. The meeting, held on Thursday by the Shanghai State-owned Assets Supervision and Administration Commission, follows growing calls from experts and major Chinese companies to develop a yuan-pegged stablecoin.

He Qing, director of the Shanghai regulator, emphasized the need for “greater sensitivity to emerging technologies and enhanced research into digital currencies” during the session, according to the regulator’s official WeChat post. The meeting was attended by roughly 60 to 70 participants.

Shanghai, as China’s leading international financial center, often pilots regulatory reforms. Nick Ruck, director at LVRG Research, highlighted Shanghai’s potential to shape blockchain-based payment innovations, given China’s strong fintech ecosystem.

Globally, blockchain-based stablecoins—typically pegged to fiat currencies and enabling faster, cheaper transactions—have gained momentum. ARK Investment Management estimates that stablecoin transaction volumes reached $15.6 trillion worldwide last year, surpassing Visa’s transaction value. The U.S. has seen growing interest from large companies such as Amazon and Walmart in launching stablecoins.

In Asia, South Korea’s government has pledged to allow won-based stablecoins and support related infrastructure, though the central bank advises a cautious, gradual approach. Within China, companies like JD.com and fintech giant Ant Group have urged the People’s Bank of China to approve yuan-based stablecoins to counter the dominance of U.S. dollar-linked cryptocurrencies. Both plan to seek stablecoin licenses in Hong Kong, where legislation takes effect on August 1.

The Shanghai meeting included a policy expert from Guotai Haitong Securities, who provided an overview of cryptocurrencies and stablecoins, examined global regulatory frameworks, and offered policy suggestions for digital currency development.

Meanwhile, Yang Tao, deputy director of the National Institution for Finance and Development, recommended exploring yuan-based stablecoin issuance in both the Shanghai Pilot Free Trade Zone and Hong Kong simultaneously.

Despite this increasing interest, significant hurdles remain. China’s capital controls present major challenges for stablecoin development, and central bank governor Pan Gongsheng recently warned that the rise of digital currencies and stablecoins poses serious regulatory challenges. Cryptocurrency trading and mining were banned in mainland China in 2021 over financial stability concerns.

While stablecoins are gaining attention domestically, the future of other cryptocurrencies in China remains uncertain. Outside the mainland, cryptocurrencies continue to grow in popularity, with Bitcoin recently hitting a record high above $118,000.