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The Hong Kong stablecoin regulatory framework is drawing sharp reactions from industry leaders, with DBS Bank warning that strict anti-money laundering (AML) and know-your-customer (KYC) rules will limit the use of stablecoins in derivatives trading. The new framework, which took effect on August 1, criminalizes the promotion of unlicensed stablecoins and introduces a public registry of authorized issuers.
Sebastian Paredes, CEO of DBS Hong Kong, told The Standard that while the bank continues to monitor developments, it will prioritize broader applications of stablecoins instead of focusing on derivatives.
The Hong Kong stablecoin regulatory framework aims to strengthen oversight of digital assets in a market positioning itself as a global crypto hub. However, critics argue the rules may have gone too far.
“Hong Kong’s framework risks stifling innovation by layering restrictions that make it difficult for stablecoins to play a meaningful role in onchain derivatives,” — Sebastian Paredes, CEO, DBS Hong Kong.
Industry reaction was swift when the framework was announced, with several stablecoin firms reporting double-digit losses amid concerns that compliance requirements would curb adoption. The restrictions were intended to reduce risks of fraud and money laundering but have instead raised fears of driving away legitimate players.
The Securities and Futures Commission (SFC) has cautioned that the hype surrounding license applications could expose investors to scams, further complicating the market environment.
Despite its reservations about the Hong Kong stablecoin regulatory framework, DBS remains one of the region’s most active banks in blockchain adoption. The Hong Kong branch holds HK$492 billion (US$63.2 billion) in assets, while its parent group is Southeast Asia’s largest lender with over S$842 billion (US$620 billion) in assets.
In recent months, DBS has partnered with Franklin Templeton and Ripple to launch tokenized trading and lending services on the XRP Ledger. In late August, the bank also expanded into tokenized structured notes on Ethereum.
The institution manages the U.S. dollar reserve for Global Dollar (USDG) and has previously introduced blockchain-powered services, including over-the-counter crypto options and digital solutions for government grant disbursements.
“DBS has consistently demonstrated leadership in digital assets. Its cautious stance on Hong Kong’s framework shows the challenges banks face balancing compliance with innovation,” — Emily Wu, Senior Analyst, Asia Crypto Policy Forum.
The rollout of the Hong Kong stablecoin regulatory framework has coincided with growing scrutiny from mainland China. In early August, Chinese authorities reportedly instructed firms to halt publishing research or hosting seminars on stablecoins.
This followed speculation that state-owned banks such as HSBC and ICBC, which were initially rumored to be exploring stablecoin licenses, may have stepped back due to pressure from Beijing.
A since-removed Caixin report added to market unease, claiming that Chinese firms operating in Hong Kong could be forced to withdraw from cryptocurrency-related activities altogether.
“Hong Kong is walking a tightrope — trying to attract global capital while not crossing red lines set by Beijing,” — Martin Lee, Policy Researcher, Hong Kong Institute of Finance.
For now, the Hong Kong stablecoin regulatory framework remains a double-edged sword. On one hand, it seeks to bolster trust and reduce illicit activity in the sector. On the other, it risks pushing legitimate firms out of the market and curtailing the city’s ambition to be Asia’s crypto hub.
With DBS and other major banks signaling caution, industry watchers will be closely monitoring whether regulators adapt the framework to encourage innovation without undermining oversight.
As the city competes with Singapore, the EU under MiCA, and other jurisdictions in shaping digital asset policy, how Hong Kong balances risk and growth could define its financial future.
