Stablecoins represent the first Web3 consumer product capable of reaching billion-dollar scale, and Hong Kong’s evolving regulatory framework is poised to catalyze their global adoption. On July 17, the Hong Kong Financial Services and Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) released the Summary of Responses to the Consultation on Legislative Proposals for a Regime to Regulate Stablecoin Issuers in Hong Kong. The authorities affirmed their intent to act on public feedback and will soon submit a bill to the Legislative Council. Notably, HKMA has already begun processing applications for its stablecoin “Regulatory Sandbox,” with a participant list that signals serious momentum in the space.
OSL, already in dialogue with multiple institutions within the stablecoin sandbox framework, is strategically positioning itself at the forefront of this transformation. As Hong Kong strengthens its regulatory clarity, stablecoins are expected to play a pivotal role in the city’s financial ecosystem—reinforcing its status as a global fintech hub and attracting a new wave of investment and innovation.
The Strategic Role of OSL in Hong Kong’s Digital Finance Evolution
As the only Hong Kong-listed company (863.HK) fully dedicated to digital assets, OSL Group operates a licensed digital asset exchange offering brokerage, trading, custody, and SaaS-based technology solutions. Since becoming the world’s first digital asset exchange licensed by the Securities and Futures Commission (SFC) in December 2020—authorized for Type 1 (Securities Dealing) and Type 7 (Automated Trading Services)—OSL has set benchmarks in compliance, security, and institutional-grade service delivery.
To explore the implications of Hong Kong’s emerging stablecoin regime, we spoke with Mr. Hu Zhenbang, CFO of OSL Group, on key regulatory developments, market opportunities, and infrastructure readiness.
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How Will Hong Kong’s Stablecoin Model Differ from Global Counterparts?
Q: How might Hong Kong’s approach to reserve custody, minting, and redemption differ from existing global stablecoins in terms of participant types and operational processes?
Hu Zhenbang: While stablecoins like USDC and USDT have gained traction across Southeast Asia, the Middle East, and Africa as payment tools, concerns persist around reserve adequacy, financial transparency, investment risk, solvency, and redemption efficiency.
Hong Kong’s initiative—launching a consultation and inviting select issuers into a regulatory sandbox—marks a significant step toward building a trusted, compliant stablecoin market. Unlike less-regulated models, Hong Kong is expected to mandate that reserves be held exclusively by HKMA-regulated banks or financial institutions. These entities bring robust compliance frameworks and proven asset management capabilities, directly enhancing market confidence.
Moreover, licensed digital asset exchanges or regulated custodians could play active roles in custody, minting, and redemption workflows. This diversified institutional involvement would streamline operations and support same-day or next-business-day redemptions—a critical upgrade over current delays in some systems.
Regulators are likely to enforce strict reserve requirements, ensuring full backing at all times, potentially with additional buffer reserves. Crucially, reserves will likely be restricted to high-liquidity, low-risk assets—such as cash and short-term government bonds—to guarantee convertibility under all market conditions.
Transparency will be another cornerstone. Issuers under HKMA oversight may be required to publish regular, independently audited financial reports. This level of disclosure will provide verifiable assurance of reserve integrity.
Legal protections in Hong Kong further strengthen trust. Rooted in common law, the jurisdiction offers strong investor safeguards. We anticipate mandatory trust structures that legally segregate reserve assets from issuer balance sheets. Appointing independent trustees and formalizing trust declarations will ensure users retain legal claims to reserves—even in insolvency scenarios.
Finally, strict adherence to AML (anti-money laundering) regulations will be non-negotiable. Combined with Hong Kong’s global financial partnerships, this creates a foundation for cross-border regulatory cooperation—essential for international stablecoin legitimacy.
Key Use Cases: Where Will Hong Kong Stablecoins Make an Impact?
Q: What application scenarios do you foresee for Hong Kong-issued stablecoins?
Hu Zhenbang: In the initial phase, we expect Hong Kong-issued stablecoins pegged to the HKD and USD, operating primarily on mainstream public blockchains like Ethereum ERC-20. Major banks will likely serve as custodians of reserve assets, ensuring security and auditability.
The earliest use cases will center on B2B cross-border trade settlements. As a global trade and financial hub, Hong Kong facilitates vast international transactions. Stablecoins can drastically reduce settlement times—from days to minutes—cut transaction costs by eliminating intermediaries, and mitigate currency volatility risks.
For example, a manufacturer in Southern China importing machinery from Germany could settle payments instantly via a USD-pegged stablecoin, avoiding SWIFT delays and FX spreads. This efficiency gain translates into improved cash flow and supply chain resilience.
As adoption grows, use cases will expand into B2C payments and investment applications. Consumers could use stablecoins for e-commerce purchases, retail payments, or low-cost personal remittances across borders—offering faster, cheaper alternatives to traditional wire transfers or money transfer operators.
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Critical Questions Ahead: Infrastructure, Education, and Global Compliance
Q: What deeper issues need attention as Hong Kong develops its stablecoin ecosystem?
Hu Zhenbang: Several challenges remain unresolved:
First, secure custody and trading infrastructure must be accessible to both enterprises and individuals. Regulated exchanges like OSL—with proven custody solutions and compliance frameworks—can bridge this gap by offering trusted gateways for on- and off-ramping stablecoins.
Second, investor education is critical. Stablecoins are still poorly understood by many businesses and consumers. Misconceptions about risk, technology, or regulation could hinder adoption. Collaborative efforts between regulators, financial institutions, and industry players are essential to build public awareness and trust.
Third, cross-border legal recognition remains complex. For Hong Kong-issued stablecoins to gain global traction, they must navigate diverse regulatory environments. Harmonizing standards through international cooperation—such as mutual recognition agreements or joint regulatory dialogues—will be key.
A particularly nuanced issue is whether reserve assets can be held overseas. While offshore custody might offer operational flexibility, it introduces jurisdictional risks related to asset seizure, legal enforcement, or transparency gaps. Clear guidelines on when and how overseas reserves are permitted—and how they remain auditable and secure—will be vital for both issuers and users.
Frequently Asked Questions (FAQ)
Q: What makes Hong Kong’s stablecoin approach unique compared to other jurisdictions?
A: Hong Kong combines strict regulatory oversight with financial innovation. By mandating full reserves, independent audits, trust structures, and AML compliance—all within a common law framework—it offers a trusted model that balances safety with scalability.
Q: Will Hong Kong stablecoins only be usable within the region?
A: No. While initial adoption may focus locally and regionally, the goal is global interoperability. Pegged to major currencies and built on open blockchains, these stablecoins are designed for cross-border use in trade, remittances, and digital commerce.
Q: How soon could we see regulated Hong Kong stablecoins launch?
A: With legislation expected soon and sandbox testing underway, pilot programs could emerge within 2025. Full-scale issuance may follow within 12–18 months after regulatory approval.
Q: Can individuals use Hong Kong stablecoins for everyday payments?
A: Initially focused on B2B use, retail adoption will grow as merchant acceptance expands. Integration with digital wallets and payment gateways will eventually enable everyday transactions.
Q: Are there risks if reserves are held in foreign assets?
A: Yes—jurisdictional risk is real. That’s why regulators are likely to impose strict conditions on offshore holdings, including transparency requirements, audit rights, and legal enforceability of trust protections.
Q: How does OSL support the stablecoin ecosystem?
A: OSL provides secure custody, compliant trading infrastructure, and SaaS solutions that help institutions manage digital assets—including stablecoins—safely and efficiently under Hong Kong’s regulatory regime.
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Final Thoughts: Building Trust Through Regulation
Hong Kong’s push toward a regulated stablecoin framework isn’t just about financial innovation—it’s about building trust at scale. By enforcing full reserves, transparent audits, legal segregation of assets, and strong AML controls, the city is crafting a model that could set a new global standard.
For firms like OSL, this represents both an opportunity and a responsibility—to help shape infrastructure that’s secure, efficient, and accessible. As stablecoins evolve from speculative assets to functional money, Hong Kong is positioning itself as a pioneer in responsible digital finance.
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