- The Consumer Council (the Council) is pleased to submit its views with respect to the consultation paper issued by the Hong Kong Monetary Authority (HKMA) on the Draft Guideline on Supervision of Licensed Stablecoin Issuers (the draft guideline).
The Council’s Overall Stance
- The Council welcomes the passage of the Stablecoins Bill as a regulatory regime for fiat-referenced stablecoin issuers. This lays a solid foundation for Hong Kong as an international financial centre that pioneers in virtual asset (VA) regulation. The Council also supports the the HKMA introducing a guideline which sets out expectations on how licensed stablecoin issuers (i.e. licensees) should fulfil the minimum criteria in the Stablecoins Ordinance (SO). The legislative and supervisory milestones are significant steps forward in enhancing consumer protection as well as public confidence, financial stability, and market integrity in the VA ecosystem.
- In the following parts, the Council puts forward its comments/suggestions on specific requirements of the draft guideline with a view to strengthening consumer protection.
Views on Specific Requirements
Reserve assets management
Disclosure and reporting
- In its previous response to the Consultation on the Legislative Proposal to Implement the Regulatory Regime for Stablecoin Issuers in Hong Kong in February 2024 (the previous response)[1], the Council has stressed the need to set out clear disclosure requirements. The Council acknowledges the effort of the HKMA in enhancing information transparency in this draft guideline by setting a specific frequency or timeframe, such as requiring licensees to prepare statements on the par value of the outstanding specified stablecoins in circulation, as well as the market value and composition of its reserve assets on a daily basis, and to report these types of information to the HKMA every week or when requested (paragraph 2.6.2of the draft guideline).
- Nevertheless, the Council notes that a more flexible approach was adopted in the draft guideline regarding performing attestation on reserve assets and submitting/disclosing the relevant reports, stating that attestation should be conducted “on a regular basis at a frequency that is acceptable to the HKMA” and “in a timely manner” (paragraph 2.6.3). This approach also differed from paragraph 3.2.20 of the Consultation Conclusions[2], which mentioned that “the HKMA intends to proceed with the proposed requirement of monthly attestation on reserve assets conducted by a qualified and independent auditor, so as to instil public confidence”. The Council opines that a clear disclosure timeframe is of high importance in building public trust in stablecoins as a legitimate and safe part of the financial system. The Council would appreciate clarification on the rationale behind the shift in approach in the draft guideline on requirement of attestation.
- As reference, in the United States (US), the Guiding and Establishing National Innovation for US Stablecoins Act of 2025, proposed lately in May 2025, also mandates stablecoin issuers to have the monthly composition of their reserves examined by a registered public accounting firm each month[3]. For better information transparency, the Council also suggests the HKMA to take into account developments on this matter when finalising the guideline.
Issuance, redemption and distribution
Redemption requirements
- Regarding the redemption fee, Section 6 of Schedule 2 to the SO stipulates that “a licensee must not charge a fee in connection with the redemption of a specified stablecoin unless the fee is reasonable”. While the draft guideline outlines factors to evaluate the reasonableness of the fees charged by licensees (paragraph 3.2.4), the Council believes that such assessments and factors should also be known by the public, to avoid potentially excessive or opaque charges.
- Section 6 of Schedule 2 to the SO also stipulates that “a licensee must not attach any condition restricting the redemption of a specified stablecoin that is unduly burdensome in the circumstance”. In addition to prompt and fair redemption of stablecoins at par value, the Council suggests that the guideline might also provide some scenarios to explain to the public what kind of conditions would be considered unduly burdensome (such as minimum redemption amounts).
- To better safeguard the interests of consumers, the Council also recommends the HKMA to consider stricter protection for redemption. For instance, in the United Kingdom, the Financial Conduct Authority issued a consultation paper on “Stablecoin Issuance and Cryptoasset Custody”, proposing that “to ensure that holders do not incur unnecessary costs when redeeming stablecoins, fees must not exceed the value of the stablecoins being redeemed, and issuers must not pass on any costs or losses arising from the sale of assets in the backing asset pool as a fee”[4]. The HKMA might also make reference to these proposals in other jurisdictions when finalising the guideline.
Distribution requirements
- The Council notes that the draft guideline suggests a series of factors for licensees to consider when conducting risk assessments and due diligence on third-party entities for stablecoin distribution, such as size, capabilities, expertise, track record and governance of such entities (paragraph 3.3.2). On top of that, the Council emphasises that the financial impact on end-users must not be overlooked; therefore, the service fees charged by such entities, as well as the associated operational costs, should also be taken into consideration. Including fee structures and cost efficiency in the assessment criteria would help to ensure that consumers are not subjected to disproportionately high charges arising from third-party arrangements.
Customer on-boarding
- As the Council emphasised in the previous response, know-your-client (KYC) requirements are commonly found in financial services. The Council appreciates the HKMA setting out requirements in the draft guideline and the draft Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Stablecoin Issuers). Regarding paragraph 3.4.2 which proposes that a licensee should ensure that it does not issue specified stablecoins in jurisdictions where such activity is unlawful by, for example, geolocation lookup via Internet Protocol (IP) addresses, the Council suggests that the HKMA should also revisit the accuracy of such geolocation lookup via IP addresses, and consider other more accurate and effective ways to confirm customers’ location if possible when providing guidance or suggestions to licensees to tackle such type of issue.
- Moreover, the HKMA also suggests in paragraph 3.4.3 that “a licensee should implement controls to mitigate the risk of location spoofing, for example, via the use of virtual private networks (VPN)… the licensee may detect VPN usage by examining the network protocols, checking device configurations, and/or verifying IP addresses against the server addresses of commercial VPN providers”. The Council opines that VPN is used not only to hide IP addresses, but also to protect consumers’ privacy by encrypting internet traffic, leaving their browsing history and location untraceable[5]. Thus, to strike a prudent balance between regulatory oversight and the fundamental right to privacy, the Council recommends that the HKMA might encourage licensees to explore the adoption of alternative privacy-preserving cryptographic protocols, such as Zero-Knowledge Proof (ZKP) and Zero-Knowledge Proof of Location (zk-PoL)[6]. In case tracking of users will be conducted, this should also be clearly disclosed to users during the onboarding process.
- The Council recommends the HKMA to revisit its proposed control measures (especially paragraph 3.4.3) to ensure that they should be risk-based and minimally intrusive while maintaining high accuracy.
Disclosure and reporting
- Regarding the timeframe for licensees to conduct operational audits and reports to the HKMA (paragraph 3.5.2), instead of “in a timely manner”, the Council suggests the HKMA to specify the requirement on the frequency by taking into account factors such as practicality, the unique nature of stablecoins and their trading, and consumers’ right to be informed, etc. The Council believes a more concrete reporting requirement would not only enable the HKMA to closely monitor licensee compliance, but also reinforce public confidence in the integrity and accountability of stablecoins issuers.
Business practices and conduct
Complaints handling
- Section 14 of Schedule 2 to the SO sets out the minimum criteria regarding complaints handling and redress mechanisms. The Council is pleased to note that many of the recommendations in the previous response have been incorporated into the draft guideline[7]. To further enhance the effectiveness of these mechanisms, the HKMA may also establish timeframes for licensees to respond to complaints. For example, the Code of Banking Practice requires Authorised Institutions to acknowledge complaints within seven days of their receipt and to provide a response within 30 days[8]. Meanwhile, the Council also recommends the HKMA to specify a clear and consistent reporting interval to submit reports of consumer complaints, ensuring timely monitoring and early identification of systemic issues.
- The Council suggests that the HKMA might publish on its website a list of complaint channels offered by each licensee that consumers can use to make complaints or enquiries. Such a measure would facilitate direct communication, improve complaint handling efficiency, and foster a more consumer-centric regulatory environment. In the long run, the HKMA should consider requiring all licensees to join the Financial Dispute Resolution Scheme and to proactively inform complainants of such alternative and external dispute resolution mechanisms, which would provide complainants an alternative avenue for resolving disputes.
- Moreover, the Council suggests that the HKMA should not only collect but also actively review and analyse complaint data of licensees and related third-party entities. With reference to the HKMA’s biannual disclosure of Complaints Watch[9], the findings could be compiled and published to the public in a regular report in a similar approach. Such transparency would not only reinforce the public’s right to know but also provide valuable insights into emerging consumer protection concerns and industry practices.
Other licensing matters
Advertising requirements
- The Council notes Section 23 of the SO states that “a licensee must ensure that the licence number of its licence is clearly stated on any advertising material relating to a licensed stablecoin activity of the licensee”; while Section 10 illustrates offences related to advertising illegal stablecoin activity and unauthorised stablecoins[10]. In addition to the above, the Council still deems it important to set out more specific requirements when finalising the guideline. To address this, the Council reiterates its recommendation suggested in the previous response that stablecoin issuers should be required to:
- Include clear risk warnings encouraging consumers to conduct due diligence or seek professional advice before investing;
- Avoid any languages or claims that imply interest payments or may cause readers to reasonably but wrongly assume there are interest payments, consistent with international practices;
- Be free from false, misleading, or deceptive content, in line with standards under the VA licensing regime of the Securities and Futures Commission; and
- Refrain from associating with or promoting specific VA trading platforms.
- These measures are essential to prevent consumer harm, reduce misinformation, and ensure that advertising does not mislead or bait retail investors. The Council urges the HKMA to consider incorporating these advertising safeguards into the guideline.
Provision of a compliance checklist
- Finally, given the breadth and depth of compliance obligations outlined in the draft guideline, ranging from the publication of a white paper on governance arrangements, risk management frameworks, safeguarding of reserve assets, to regular disclosure and audit requirements, the Council suggests that the HKMA may consider providing a structured compliance checklist or template for licensees to help them ensure the fulfilment of the numerous procedural expectations. A well-designed checklist would not only promote consistency and clarity across the industry, but also enhance regulatory efficiency by reducing ambiguity and administrative burden. Eventually, greater compliance could enhance consumer confidence in the stablecoin market and the whole VA ecosystem.
Conclusion
- The Council invites the HKMA to take account of the above suggestions in finalising and implementing the guideline. Finally, the Council believes regular review and refinement of the guideline is crucial amid the fast-changing development of the VA market.
[6] ZKP enables a user to prove possession of certain information without revealing the underlying data itself. Building on this, zk-PoL allows users to prove that they are at a specific location at a specific time without disclosing their exact coordinates or identity. This approach also supports hierarchical privacy, enabling different levels of disclosure depending on the service requirement. In this sense, by integrating zk-PoL into stablecoin transaction monitoring, licensees can verify compliance with location-based restrictions while upholding user privacy and data protection obligations.
[7] For example, to provide consumers with reasonable channels to submit claims, make complaints and seek redress; and to acknowledge, resolve or provide a response to complainants within a reasonable time.
