Regulatory Framework - The Hong Kong Monetary Authority (HKMA) will implement a regulatory framework for stablecoin issuers starting August 1, 2025, which includes strict licensing requirements and compliance guidelines[1] - Minimum capital requirement for stablecoin issuers is set at HKD 25 million (approximately USD 3.2 million) with ongoing compliance obligations[8] - Issuers must establish a sustainable business model and maintain a 100% backing of reserves with high-quality, low-risk assets[10] Compliance and Monitoring - Issuers are required to implement robust anti-money laundering (AML) and counter-terrorism financing (CTF) measures, including comprehensive Know Your Customer (KYC) processes[12] - The regulatory framework emphasizes a "risk coverage" approach, ensuring that all transactions are monitored and compliant with travel rules[13] Market Application - B2B cross-border payments are identified as the most suitable application for Hong Kong's stablecoin regulatory framework due to their large transaction sizes and complex compliance requirements[15] - Compared to the U.S. and EU, Hong Kong's regulatory environment offers greater flexibility for stablecoin issuers, making it an attractive jurisdiction for businesses engaged in cross-border trade[19] Impact on Stablecoin Development - Banks are expected to lead the issuance of stablecoins, with two categories emerging: single-currency stablecoins for SMEs and multi-currency stablecoins for larger enterprises[24] - The focus of stablecoins in Hong Kong will be on payment functionalities rather than trading, aligning with real-world technological innovations[25] Industry Implications - Compliance costs for stablecoin issuers will increase, but financial institutions may absorb these costs more effectively due to their existing regulatory frameworks[26] - The trading volume on virtual asset exchanges is not expected to see significant increases from the initial stablecoin offerings, as these will prioritize payment functionalities[26]