Hong Kong Steps Up Global Stablecoin Oversight, Focuses on Competition with Tokyo

Hong Kong's financial authorities have introduced strict regulations for stablecoin issuers, limiting them to only fiat-backed tokens and requiring applicants to have a minimum capital of 25 million Hong Kong dollars. This update, revealed by the city's stablecoin review tribunal,

but has sparked debate over whether Hong Kong can remain competitive as global digital asset markets grow more crowded.

Under the tribunal's new rules, which take effect immediately, stablecoin operators must fully back their tokens with fiat currency reserves,

put in place by both Canada and the European Union. The intention is to reduce the risks linked to algorithmic and crypto-backed stablecoins, which regulators often consider volatile. Applicants are also required to prove they have strong risk controls and cybersecurity measures, with the Bank of Hong Kong tasked with ensuring compliance.

The capital threshold, set at 25 million HKD (around $3.2 million), is meant to bolster financial stability but may discourage smaller companies from participating.

to Canada's latest stablecoin rules, which also require issuers to meet reserve and liquidity standards. Still, some critics believe Hong Kong is falling behind Japan, where more crypto-friendly policies could help Tokyo become a leading force in Asia's digital asset sector.

Major international firms are already adjusting to these regulatory shifts. Deutsche Börse Group and Société Générale's FORGE division have incorporated stablecoins backed by euros and dollars into their main market infrastructure, using regulated systems to improve settlement efficiency. These moves highlight the increasing role of fiat-backed stablecoins in institutional finance—a market Hong Kong hopes to lead.

However, obstacles remain. Japan's proactive efforts to attract crypto companies, including tax breaks and simplified licensing, are drawing interest from Hong Kong-based firms looking to expand. At the same time, U.S. sanctions and ongoing geopolitical issues are making it harder for Hong Kong to establish itself as a neutral center for digital assets.

The tribunal's ruling is in line with Beijing's broader goal of keeping a firm grip on financial innovation within its borders. While Hong Kong's clear regulatory stance may attract certain investors, the city's close ties to mainland China continue to be a source of uncertainty for global businesses concerned about geopolitical instability.