Hong Kong’s Financial Secretary, Paul Chan, recently reiterated at an international conference that the city applies the principle of "same business, same risks, same regulation" to digital asset oversight. Under this approach, Hong Kong has implemented a licensing regime for both digital asset platforms and stablecoin issuers, covering investor protection, anti-money laundering, and other critical requirements. The core logic is straightforward: when digital asset activities functionally mirror those in traditional finance, they present comparable risks and should therefore be subject to equivalent regulatory standards.
Specifically, Virtual Asset Trading Platforms (VATPs) must apply for a license with the Securities and Futures Commission (SFC) and comply with stringent client asset custody requirements—including 98% cold storage, 2% hot storage, asset segregation, insurance, and audit obligations. Stablecoin issuers must register under the Hong Kong Monetary Authority (HKMA) framework and meet capital adequacy and reserve management requirements. This principle underpins Hong Kong’s multi-layered regulatory system, which covers VASP licensing, stablecoin oversight, and anti-money laundering compliance—offering a compliance framework that stands up to international benchmarks.
Legislative Progress of the CARF Reporting Framework
On May 22, 2026, the Hong Kong government gazetted the Inland Revenue (Amendment) (Cryptocurrency Reporting Framework and Revised Common Reporting Standard) Bill 2026, which is scheduled for a first reading in the Legislative Council on June 3. The bill aims to implement the Crypto-Asset Reporting Framework (CARF) released by the OECD in 2023, while also updating the existing Common Reporting Standard (CRS). At its core, CARF requires automatic annual exchange of tax-related information on crypto-asset transactions between tax jurisdictions, integrating digital financial products and enhanced reporting and due diligence into the information exchange system. Under the proposed legislation, crypto-asset service providers with reporting obligations in Hong Kong must register with the Inland Revenue Department and fulfill due diligence, reporting, and record-keeping requirements. According to the plan, Hong Kong will begin automatic exchange of crypto-asset transaction tax information with relevant jurisdictions starting in 2028.
How Will the CARF Reporting Framework Impact Crypto-Asset Service Providers?
The implementation of CARF will fundamentally reshape compliance operations for crypto-asset service providers. First, providers must establish robust client identification and transaction tracking systems to support the due diligence and reporting required for cross-border tax information exchange. Second, with CARF and CRS being updated in tandem, service providers must accurately reconcile and integrate their reporting across both frameworks. In practice, this means developing or upgrading internal compliance systems and building matching logic to determine, transaction by transaction, whether a particular crypto asset falls under CARF reporting, and whether it should be excluded from CRS submissions. Industry-wide, CARF will increase tax transparency in the crypto-asset market, but also raise the bar for compliance costs, IT system capabilities, and data security. For licensed VATPs and those planning to enter the Hong Kong market, early adoption of CARF-compliant compliance structures will be a top priority.
Progress on Hong Kong’s Stablecoin Licensing Regime
The Hong Kong Stablecoin Ordinance will take effect in August 2025, establishing a mandatory licensing regime for fiat-referenced stablecoin issuers. The HKMA has received 36 stablecoin license applications but only granted two in the first batch, effective April 10, 2026. The licensed entities are Standard Chartered (Hong Kong) and Digital Finance Limited—a joint venture between HKT, Ant Group, and Standard Chartered—as well as HSBC, through its wholly owned subsidiary. Digital Finance Limited is expected to begin phased issuance of regulated, HKD-pegged stablecoins (HKDAP) in Q2 2026, while HSBC plans to launch its own HKD stablecoin in the second half of 2026, targeting applications in cross-border payments, domestic payments, and tokenized asset transactions. Key requirements for issuers include a minimum paid-up capital of HKD 25 million, 100% high-liquidity reserves with daily public disclosure, a ban on algorithmic stablecoins, and full implementation of KYC and AML standards. Market sources note that some participants in the HKMA’s stablecoin issuer sandbox, such as Circle, were not included in the first batch of licensees.
What Structural Impact Will the Licensing Regime Have on the Stablecoin Market?
Granting only two licenses in the first batch sends a clear regulatory signal: market entry standards have shifted from mere compliance feasibility to substantive verification of institutional-grade security and risk controls. All successful applicants have strong banking compliance backgrounds—HSBC is one of Hong Kong’s note-issuing banks, while Digital Finance Limited brings together Standard Chartered’s compliance foundation with the Web3 ecosystem capabilities of HKT and Ant Group. This selection underscores the HKMA’s focus on comprehensive compliance frameworks, robust reserve management, and thorough sandbox-stage validation as core approval criteria. Structurally, the licensing regime will drive the Hong Kong stablecoin market toward a "licensed qualified institution" model: unlicensed stablecoin issuance will be strictly prohibited, with violators facing fines up to HKD 5 million and up to seven years’ imprisonment. This institutional framework not only establishes robust risk isolation but also positions compliant stablecoins as foundational for future tokenized asset settlement and cross-border payment scenarios.
How Global Regulatory Shifts Amplify Hong Kong’s Compliance Advantage
Major global jurisdictions are undergoing structural changes in crypto-asset regulation. On May 14, 2026, the U.S. Senate Banking Committee passed the CLARITY Act by a vote of 15 to 9. Section 404 of the Act imposes strict limits on stablecoin yields, prohibiting issuers from paying passive interest to holders. Some research institutions suggest this policy could echo the historical impact of Regulation Q in the 20th century, which spurred the rise of the Eurodollar market. Over the next 18 to 36 months, as much as $3–5 billion in stablecoin capital could flow to regulatory-friendly jurisdictions like Hong Kong. Against this backdrop, Hong Kong’s completion of stablecoin legislation and the issuance of its first licenses—underpinned by the "same business, same risks, same regulation" framework—creates a globally competitive compliance environment. As one Hong Kong legislator noted, compared to the U.S., where regulation is subject to political cycles and uncertainty, Hong Kong’s policy stability and continuity are key advantages.
How Is Hong Kong’s "Licensing Regime" Pathway Shaping Its Web3 Hub Strategy?
Since the Hong Kong SAR government’s "Policy Statement on the Development of Virtual Assets in Hong Kong" in October 2022, the city’s Web3 hub strategy has passed three major milestones: the VASP licensing regime took effect in June 2023, requiring trading platforms to be licensed; the release of "Policy Statement 2.0" in 2025, which further clarified the regulatory roadmap; and the issuance of the first stablecoin licenses in April 2026. The regulatory architecture now features a "dual license, dual regulator" model: VATP service providers are supervised by the SFC, while independent custodians and stablecoin issuers fall under the HKMA. According to the Financial Services and the Treasury Bureau, Hong Kong aims to introduce a bill on digital asset trading and custody services this year, further expanding the scope of regulated activities. Industry experts believe Hong Kong’s next focus will be on participant segmentation, product classification legislation, and cross-jurisdictional infrastructure connectivity. Paul Chan has also highlighted 2026 as a pivotal year for the convergence of Web3 and AI, with Hong Kong striving to become a global hub for digital assets and smart finance. Through this gradual approach, Hong Kong is evolving from a crypto-friendly jurisdiction into a mature digital financial center with a robust licensing regime and the capacity to export its regulatory model.
Conclusion
Hong Kong’s digital asset regulatory framework is undergoing a critical phase of institutionalization. At the principle level, "same business, same risks, same regulation" establishes the logical foundation for oversight, integrating digital asset activities into risk management and compliance standards comparable to those in traditional finance. On the reporting front, legislative progress on the CARF framework brings crypto-asset transactions into the cross-border automatic tax information exchange system, significantly enhancing market tax transparency. In terms of licensing, stablecoin regulation has moved from legislative enactment to the issuance of the first licenses, creating a complete regulatory loop and raising market entry standards toward institutionalization and normalization. Meanwhile, global regulatory shifts—especially the potential capital reallocation triggered by the U.S. CLARITY Act—are boosting the appeal of Hong Kong’s compliance framework.
In summary, Hong Kong’s Web3 hub strategy is moving from policy declarations to institutional maturity. The ongoing rollout of the licensing regime—from VASPs to stablecoin issuers, and soon to digital asset trading and custody licenses—is building a layered, comprehensive compliance system. Hong Kong’s experience offers a model for global digital asset regulation: by ensuring risks are manageable and providing a clear legal framework and phased licensing, the city turns regulatory certainty into a competitive advantage for fintech innovation.
Frequently Asked Questions (FAQ)
Q: When will Hong Kong’s CARF reporting framework take effect?
The CARF reporting framework will be formally implemented in 2027. Crypto-asset service providers with reporting obligations in Hong Kong must register with the Inland Revenue Department and fulfill due diligence, reporting, and record-keeping requirements. Starting in 2028, Hong Kong will begin automatic exchange of crypto-asset transaction tax information with relevant tax jurisdictions.
Q: Which institutions received the first batch of stablecoin licenses?
The Hong Kong Monetary Authority issued two stablecoin licenses in the first batch, effective April 10, 2026. The licensees are Digital Finance Limited—a joint venture between Standard Chartered (Hong Kong), HKT, and Ant Group—and HSBC, through its wholly owned subsidiary.
Q: What are the core compliance requirements for stablecoin issuers?
Stablecoin issuers must register in Hong Kong, maintain a minimum paid-up capital of HKD 25 million, hold 100% high-liquidity reserves with daily public disclosure, are prohibited from issuing algorithmic stablecoins, and must fully implement KYC and anti-money laundering standards.
Q: What does the "same business, same risks, same regulation" principle mean in practice?
The core idea is that when digital asset activities are functionally comparable to traditional financial services, they face similar risk types and levels, and should therefore be subject to equivalent regulatory standards. Currently, VATPs are regulated by the SFC, while stablecoin issuers are overseen by the HKMA. Both licensing regimes include requirements for investor protection and anti-money laundering compliance.
Q: What business activities are covered by Hong Kong’s VASP licensing regime?
Under the revised Anti-Money Laundering and Counter-Terrorist Financing Ordinance (effective June 1, 2023), Virtual Asset Service Providers (VASPs) are formally brought under regulation. VATPs must obtain an SFC license to operate. The licensing regime covers both trading and custody services, with licensed platforms required to safeguard client assets through wholly owned subsidiaries and comply with strict asset segregation, insurance, and audit requirements.
Q: How many licensed virtual asset trading platforms are there in Hong Kong?
Since the policy statement was issued in 2022, Hong Kong has licensed 11 virtual asset trading platforms. As the regulatory framework continues to evolve, the number of licensed platforms and the scope of related business activities are expected to expand further.
