Hong Kong’s newly implemented stablecoin law, in effect since 1 August, has sparked concern among some in the industry over its stringent customer identification requirements, which they say could limit the adoption of stablecoins and affect the city’s appeal in global digital finance.
The law positions Hong Kong as one of the first jurisdictions globally to regulate fiat-backed stablecoin issuers, offering an early-mover advantage in its push to become a virtual asset hub, according to Reuters.
However, market participants say the finalised know-your-customer (KYC) rules, requiring issuers to verify the identity of every stablecoin holder, have raised questions about their impact on user privacy and the broader adoption of the digital asset.
The Hong Kong Monetary Authority (HKMA) stated the measures are necessary to counter money laundering and terrorism financing, noting a cautious approach is being taken at this initial stage of regulation.
Bo Tang, assistant director at the HKUST Institute for Financial Research, said the rules might pose operational challenges, particularly for businesses engaged in cross-border payments.
If recipients of stablecoins are required to open accounts in Hong Kong to satisfy KYC checks, it may reduce stablecoins’ efficiency and privacy benefits over traditional payments, he noted.
Stablecoins are digital tokens typically pegged to fiat currencies such as the US dollar.
Their underlying blockchain infrastructure enables fast, low-cost, and round-the-clock transactions, making them a potential alternative to traditional financial systems, particularly for international transfers.
Some industry participants have drawn comparisons with the US, where the recently signed GENIUS Act marked the country’s first major legislation focused on stablecoins.
Several observers suggested Hong Kong’s requirements go further, especially in requiring identity checks for all holders, not just account holders.
Crypto trader Ricky Xie said the broad application of KYC could deter some overseas users, particularly those relying on unhosted, or non-custodial, wallets that are typically anonymous.
The HKMA expects to issue the first round of stablecoin licenses in early 2026, but has indicated that only a limited number will be approved.
Tang added that the strict regulatory stance could also reflect efforts to manage recent speculative activity in local financial markets, where shares of companies linked to stablecoins, such as ZhongAn Online and Bright Smart Securities & Commodities, surged earlier this year but fell following the bill’s enactment.
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