Introduction

The Stablecoins Ordinance (Cap. 656) (the “Ordinance“) came into effect on 1 August 2025, which primarily regulates activities related to the offering, issuance and marketing of specified stablecoins. This marks a significant step in Hong Kong’s strategy to position itself as a global hub for digital finance. The Hong Kong Monetary Authority (“HKMA“) has issued the following documents (“HKMA Guidelines“) to set out further detailed requirements and practical guidance for the implementation of the stablecoin licensing regime in Hong Kong:

• Guideline on Supervision of Licensed Stablecoin Issuers (the “Supervisory Guideline“)
• Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Stablecoin Issuers) (the “AML/CFT Guideline“)
• Explanatory Note on Licensing of Stablecoin Issuers
• Explanatory Note on Transitional Provisions for Pre-existing Stablecoin Issuers

The scope of regulated stablecoin activities under the Ordinance

A “specified stablecoin”, as defined under the Ordinance, primarily refers to a stablecoin[1] that purports to maintain a stable value with reference wholly to official currencies (commonly referred to as a “fiat-referenced stablecoin”), or other units of account or stores of economic value specified by the HKMA. The Ordinance primarily regulates the following types of regulated stablecoin activities:

(i) issuing specified stablecoins in Hong Kong;

(ii) issuing specified stablecoins outside Hong Kong referencing the Hong Kong dollar; and

(iii) actively marketing, whether in Hong Kong or elsewhere, the issuance of specified stablecoins to the Hong Kong public (or a class of that public).

As set out in the Explanatory Note on Licensing of Stablecoin Issuers, subject to the facts and circumstances of each case, a specified stablecoin is typically considered “issued” (or “minted“) when it is first recorded on a distributed ledger (or similar information repository), and assigned to a digital wallet address.

In determining whether a specified stablecoin is “issued in Hong Kong“, the HKMA will take a holistic approach and consider all relevant factors, including but not limited to: (i) where the day-to-day management and operations of the issuer take place; (ii) where the issuer is incorporated; (iii) where the minting and burning of the specified stablecoin take place; (iv) where the reserve assets are managed; and (v) where the bank accounts for processing the cash flows arising from minting or redemption requests are maintained.

Further, in determining the scope of “actively marketing” to the Hong Kong public, the HKMA will also take a holistic approach and consider all relevant factors, including but not limited to: (i) what language is used in the marketing messages, e.g. does it include Chinese; (ii) whether it is targeted at a group of people residing in Hong Kong; (iii) whether a Hong Kong domain name is used; and (iv) whether there is a detailed marketing plan to promote the activity.

The Licensing Regime: Key requirements

Any person who carries on, or holds out as carrying on, a regulated stablecoin activity (a “stablecoin issuer“) must be licensed by the HKMA and fulfil the minimum criteria set out in Schedule 2 of the Ordinance on an ongoing basis. The Supervisory Guideline further elaborates on the minimum criteria by setting detailed regulatory expectations and guidance for licensed stablecoin issuers (“licensees“). Please click here to access a summary of the key requirements.

Application procedures

Preliminary consultation

Entities interested in applying for a license are encouraged to proactively engage with the Stablecoin Licensing Team of the HKMA to express their interest, present their business models, and demonstrate a solid understanding of the licensing criteria.

Where an interested entity is headquartered or conducts business overseas, the HKMA may consult with the relevant overseas regulators on whether the entity and/or its parent company is financially sound, stable, and suitable to undertake regulated stablecoin activities in Hong Kong. Accordingly, any foreign interested entity is advised to coordinate with its parent company and consult its home regulators prior to consultation with the HKMA to avoid any unnecessary delay in its application.

Submission and completion of application

At present, the licensing application form is not publicly available and may only be obtained directly from the Licensing Team after the preliminary consultation with the HKMA.

In addition to the application form, applicants are required to submit supporting documentation to demonstrate an applicant’s due incorporation and capacity, business plans and projections, policies and procedures and systems of control, financial soundness, and readiness to comply with the minimum criteria and other regulatory requirements. The HKMA may also request for further supplemental information from time to time. A comprehensive list is set out in Annex B of the Explanatory Note on Licensing of Stablecoin Issuers.

The HKMA invites interested entities to express their intent by 31 August 2025 and to submit formal applications by 30 September 2025. Nevertheless, the HKMA has indicated that the bar for licensing is high, and it only expects to grant the first licenses to a “handful” of applicants at the initial stages.

Transitional arrangements for pre-existing issuers

As explained in the Explanatory Note on Transitional Provisions for Pre-existing Stablecoin Issuers, the HKMA sets out transitional arrangements for entities that were carrying on regulated stablecoin activities prior to 1 August 2025 (the “Pre-existing Issuers“). Pre-existing Issuers who wish to continue to carry on regulated stablecoin activities should submit the following documents (“Relevant Documents“) to the HKMA by 31 October 2025:

• a license application to the HKMA (in accordance with the steps set out in “Application procedures” above);
• a written declaration that the Pre-existing Issuer has carried on regulated stablecoin activities in Hong Kong before 1 August 2025; and
• a written undertaking that the Pre-existing Issuer will, on being granted a provisional licence, comply with all regulatory requirements as if it were a licensee.

Pre-existing Issuers that have submitted the Relevant Documents and have received a written acknowledgement from the HKMA may be granted a provisional license to continue to carry on regulated stablecoin activities for a transitional period of six months (i.e. until 31 January 2026). Thereafter, if the HKMA grants a full license to that Pre-existing Issuer, its provisional license will cease to be in force, and as a licensee, it must continue to comply with all regulatory requirements.

Alternatively, if a Pre-existing Issuer does not wish to apply for a license or fails to submit the Relevant Documents by 31 October 2025, or Pre-existing Issuers whose application was subsequently withdrawn, or was rejected or refused by the HKMA, it will enter a 1-month closing-down period (commencing on 1 November 2025 or from the date of withdrawal, rejection or refusal) to wind down its business according to the specific requirements imposed by the HKMA. Any non-compliance with the regulatory requirements during the closing-down period constitutes an offence under the Ordinance.

Next steps

The implementation of the stablecoin licensing regime in Hong Kong marks a pivotal development in the global regulatory framework for digital assets, establishing robust standards for transparency, prudence, and investor protection in the offering, issuance and marketing of specified stablecoins in Hong Kong. However, the HKMA has also emphasized the need for continued vigilance as the regulatory landscape continues to evolve. Stakeholders are strongly recommended to proactively engage with the HKMA and align their operations with regulatory requirements and expectations to ensure the sustainable development of stablecoins in Hong Kong.

For further information or advice regarding the stablecoin licensing regime, please do not hesitate to contact us.

[1] A “stablecoin” is defined under the Ordinance as a cryptographically secured digital representation of value that—

(a) is expressed as a unit of account or store of economic value;

(b) is used, or intended to be used, as a medium of exchange accepted by the public for any one or more of the following purposes: (i) payment for goods or services; (ii) discharge of a debt; (iii) investment;

(c) can be transferred, stored or traded electronically;

(d) is operated on a distributed ledger or similar information repository; and

(e) purports to maintain a stable value with reference to (i) a single asset; or (ii) a pool or basket of assets.

However, the definition excludes central bank issued digital currencies, limited purpose digital tokens, certain securities or futures contracts, float stored in stored value facilities (SVF) or SVF deposits, and bank deposits, which are subject to other existing regulatory regimes.

On 30 July 2025, the Hong Kong Insurance Authority (“IA”) issued the Practice Note on Remuneration Structures of Authorized Insurers for Licensed Insurance Intermediaries for Participating Policies (“Practice Note”) to ensure fair customer treatment throughout the insurance life-cycle.

The IA has reminded the market and the public on various occasions¹ that intermediary commission structure is important in ensuring fair customer treatment. A commission structure purely focusing on the volume of business with most of the commission paid out in the first year of the policy term may incentivise aggressive sales practices and poor on-going servicing, resulting in unfair customer treatment. The Practice Note serves to address this issue.

The Practice Note supplements GL16: Guideline on Underwriting Long Term Insurance Business (other than Class C Business) (“GL16”). Pursuant to it, for participating policies², insurers must pay no more than 70% of the total commission during the first policy year³. The remaining commission must be spread evenly over a period of at least 5 years, or the premium payment term, whichever is shorter.

Applicability of the Practice Note

This Practice Note applies to participating insurance policies with regular premium payment terms and will take effect from 1 January 2026.

Key Requirements

Pursuant to GL16, when designing remuneration structure for intermediaries, insurers must seek to align (i) the interests of policyholders in receiving pre- and post-contract servicing with (ii) the incentive for intermediaries to provide both servicing.  Pursuant to the Practice Note, to satisfy such requirement, as a minimum, the commission payable to intermediaries in respect of participating policies must be prorated such that (“Spreading Requirement”):

(a) no more than 70% of the total commission payable is paid to the intermediary during the first policy year; and

(b) the remaining commission after the first policy year must be paid at least over a minimum of 5 years or the premium payment term, whichever is shorter, and must be spread evenly over this period.

The IA also encourages insurers to go beyond the above minimum requirements by (i) paying less than 70% of the total commission during the first policy year; and (ii) spreading the remaining commission over a period longer than 5 years.

Exceptions

In summary, an insurer may depart from the Spreading Requirement in the following situations:

(a)Where the value of the commission payable to an agent is determined based on factors including objective non-financial metrics (such as positive customer feedback and persistency rate of insurance policies produced) to evaluate the agent’s performance in complying with the “treating customers fairly” principle;

(b) Where the insurer pays the agent a fixed remuneration package i.e. such remuneration is contractually payable irrespective of whether any policy is arranged and serviced or the volume of premium;

(c) Where the insurer distributes its products via banks, provided that the overriding principles governing appropriate remuneration structures in GL16 are met; and

(d) Where the policyholder is a Professional Investor⁴, provided that in structuring the commission, the overriding principles governing appropriate remuneration structures in GL16 are met.

Practical Tips

In anticipation of the Practice Note taking effect in a few months’ time (1 January 2026), insurers are reminded to:

(a) Review the Practice Note thoroughly;

(b) Revisit their existing remuneration structures and put in place proper controls and procedures to ensure compliance;

(c) Arrange proper training and communication with their intermediaries in respect of the new requirements; and

(d) Have appropriate systems in place to enable them to maintain sufficient records to demonstrate compliance. For example, insurers relying on non-financial metrics to justify their departure from the Spreading Requirement must retain relevant documentation for 7 years and produce it upon the IA’s request.

The full Practice Note can be accessed here.

Notes:

1. For example, Issue 8 of Conduct in Focus; Paragraph 5.4 of the Note on the Green Light Process for Assessment of Investment-Linked Assurance Scheme; Paragraph 9 of the GL16: Guideline on Underwriting Long Term Insurance Business (other than Class C Business).
2. A participating policy is commonly featured in long term insurance products that have a savings element. It provides policyholders with life protection, as well as non-guaranteed benefits by distributing dividends or bonuses, allowing policyholders to share the product profits.
3. The first policy year means the 12-month period commencing from the policy effective date.
4. As defined in Schedule 1 to the Securities and Futures Ordinance (Cap.571) and the Securities and Futures (Professional Investor) Rules (Cap.571D).

The recent decision of the Hong Kong Court of First Instance in Hu Yangyong v Alba Asia Limited [2025] HKCFI 2484 has reinforced the high threshold for summary dismissal – summary dismissal will only be justified if there is gross misconduct by an employee.

Background

By an employment agreement dated 6 April 2017 (the “Employment Agreement”), the Plaintiff was employed as the former Chief Operating Officer of the Defendant, a Hong Kong company. The Employment Agreement provided for a fixed three-year term of employment, which could not be terminated before expiry except for good cause.

Under the terms of the Employment Agreement, the Plaintiff was entitled to reimburse his out-of-pocket family expenses of up to RMB 20,000 per month upon provision of official invoices to the Defendant.  

By a letter dated 7 September 2018 (the “Termination Letter”), the Defendant summarily dismissed the Plaintiff under section 9(1)(a) of the Employment Ordinance (Cap.57) (the “EO”), citing that the Plaintiff misconducted himself and was dishonest in relation to his claims for reimbursement of expenses. The Defendant’s case was that, to fully utilise the monthly threshold of RMB 20,000, the Plaintiff:

• Submitted invoices which were not issued in the same month as his reimbursement claim; and
• Submitted “other official invoices”. For instance, the Plaintiff submitted three invoices issued on the same date by a hotel with suspicious features  – the underlying expenses did not relate to the Plaintiff’s family at all

The Plaintiff denied wrongdoing and put forward the following explanations:

• The Plaintiff was told by a staff member of the Defendant that the invoices submitted for reimbursement should be issued in the Defendant’s name. However, the Plaintiff later found it difficult to comply with this requirement as invoices for his family expenses were unlikely to be issued in the Defendant’s name
• Upon discussion with a staff member of the Defendant (“ZL”), whom the Plaintiff understood to be the person handling his reimbursement claims, ZL agreed that the Plaintiff could submit invoices from “other sources” issued under the Defendant’s name instead of the actual invoices issued for his family expenses
• In submitting his invoices, the Plaintiff relied on ZL’s representation
• The Plaintiff, at all material times, did have genuine family expenses exceeding RMB 20,000 per month which could be reimbursed under the Employment Agreement
• The Defendant’s staff reviewed both the Plaintiff’s claims and the invoices before approving them, thereby further representing to the Plaintiff that his conduct was acceptable. In reliance of this representation, the Plaintiff continued to make claims and submit invoices in the said manner

Legal Principles on Summary Dismissal

The circumstances that an employer may terminate a contract of employment without notice or payment in lieu (i.e. summarily dismiss an employee) are delineated in section 9(1) of the EO. The court also reaffirmed the general principles on summary dismissal: summary dismissal constitutes a strong and extreme measure, warranted only in exceptional circumstances. The burden of proof is on the employer to justify the summary dismissal on a balance of probabilities; however, the more serious the allegation, the stronger the evidence must be before the court. This may be the case when the employee has committed a fundamental breach of the contract of employment, for example: gross misconduct by the employee, serious dishonesty, and breach of duty of good faith and fidelity.

The Court’s findings

The court noted that, based on the unusual fact scenario, it was not easy to determine whether summary dismissal of the Plaintiff by the Defendant was justified. Nonetheless, on a balance of probabilities, the court concluded that the Defendant failed to discharge its burden of justifying the summary dismissal. The court’s reasoning was as follows:

Genuine family expenses incurred: the Plaintiff did genuinely incur monthly family expenses exceeding RMB 20,000, which he was entitled to be reimbursed under the Employment Agreement. The Plaintiff’s conduct resulted in no personal gain, nor did it cause any monetary loss for the Defendant. The Plaintiff’s conduct also suggests that he genuinely believed his conduct was permissible, however unusual it may seem.

Authority of the Defendant’s employees: the Plaintiff did, as a fact, inform ZL that he would use invoices from “other sources”, to which ZL agreed. In that conversation, ZL was found to have acted with the apparent authority of the Defendant; alternatively, the conversation at least gave the Plaintiff reasonable grounds to believe that such conduct was permitted.

Subsequent inspection and verification of the invoices: the Plaintiff’s reimbursement claims and supporting invoices were routinely reviewed and approved by relevant staff members of the Defendant. Despite the peculiarity that the majority of the Plaintiff’s submitted invoices identified the Defendant as payer, no questions were raised by the Defendant’s staff. This not only reinforced the Plaintiff’s belief that the invoices he submitted were acceptable, but the fact that the Plaintiff knew the invoices would be checked also supported his case that he was acting honestly.

Despite the irregularities with the invoices, inferences of fraud or serious misconduct are not lightly drawn. Thus, the court was not persuaded that the Plaintiff acted with dishonest or fraudulent intent.

As a result, summary dismissal was not justified, and the Plaintiff was wrongfully dismissed by the Defendant. The Plaintiff was awarded with payments he would have been entitled to receive had he not been wrongfully dismissed.

Notably, prior to issuing the Termination Letter, the Defendant had wished to terminate the Plaintiff’s employment prematurely on the basis of poor performance and change of corporate structure. Subsequently, the Plaintiff was summarily dismissed on the grounds of misconduct and dishonesty in relation to his reimbursement claims.

Implications and Significance

This case reiterates that summary dismissal would only be justified in serious situations, namely that the act(s) of the employee must go to the root of the contract, so as to indicate an unwillingness to be bound by the original terms of the contract.

This case also illustrates the risks that may arise when informal decisions from individuals with apparent authority of the company deviate from established internal policies. As such, employers should formulate clear and coherent internal policies, and regularly circulate such internal policies to employees to reinforce policy compliance.

The full judgement can be accessed here: https://legalref.judiciary.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=169764&QS=%28%7BAlba%7D+%25parties%29&TP=JU

On 17 April 2025, the Court of Appeal handed down judgment in Wong Chi Hung v Lo Wing Pun and Another [2025] HKCA 370, providing significant guidance on when foreign illegality can serve as a defense to claims in unjust enrichment under Hong Kong law.

Background Facts

The defendants operated a money exchange business in Hong Kong. In June 2016, the plaintiff wished to exchange RMB 1 million he had in Mainland China into HKD. The arrangement involved the plaintiff depositing RMB into a Mainland bank account specified by the defendants, who would then deposit the equivalent amount in HKD into the plaintiff’s Hong Kong account at an agreed exchange rate.

This method of exchange, known as “match-and-knock” (對敲), is typically used by unauthorized money exchangers in Mainland China, commonly known as “underground banks” (地下錢莊), which is a colloquial expression and not a legal term. One can see from the media that in recent years, law enforcement agencies in Mainland China have cracked down on underground banks and illegal operations where individuals, for the purpose of unlawful profit, engage in cross-border remittances, foreign exchange trading, and financial payment settlements without approval from the relevant authorities.

In this case, the plaintiff duly transferred RMB 1 million to the specified account in Mainland China. However, shortly afterward, the account was frozen as part of an unrelated criminal investigation into a pyramid selling scheme. In March 2018, the entire balance in the account, including the plaintiff’s RMB 1 million, was confiscated pursuant to a Mainland court judgment, even though the plaintiff’s money had no connection to the pyramid scheme.

The defendants never paid the equivalent HKD amount to the plaintiff in Hong Kong as agreed.

Procedural History and Key Issues

At first instance, the District Court rejected the plaintiff’s claim in contract on the ground that it was unenforceable as a matter of Hong Kong public policy because of its illegality under Mainland laws. However, the Court upheld the plaintiff’s claim in unjust enrichment based on total failure of consideration.

The defendants appealed, arguing primarily that foreign illegality should bar the plaintiff’s claim in unjust enrichment for the same reasons it barred the contract claim.

The Court of Appeal’s Decision

In dismissing the appeal, G Lam JA (with whom Kwan Ag CJHC and Au JA agreed) made several significant determinations regarding the effect of foreign illegality on restitutionary claims:

1. Distinction between contractual and restitutionary claims: The Court emphasized that the obligation to restore unjust enrichment is an independent obligation imposed by law, separate from the contract between the parties. Unlike enforcing a contract, which puts parties in the position they would have been in had the contract been performed, restitution simply recognizes the ineffectiveness of the transaction and restores parties to their pre-transaction position.
2. General principles on foreign illegality and restitution: The Court held that while foreign illegality can potentially afford a defense to a claim in restitution, the fact that a contract is unenforceable due to foreign illegality does not necessarily mean that restitution will be denied.
3. Entitlement to restitution: In general, a plaintiff who has paid money to a defendant pursuant to a contract which the latter has not performed and which has been rendered ineffective due to foreign illegality should be entitled to restitution of the money.
4. Exceptions based on comity and public policy: The Court noted that restitution might be refused in exceptional cases involving egregious foreign illegality, where comity and public policy demand refusal of assistance.
5. Relevance of foreign law on restitution: The Court held that where the foreign law itself provides for restitution in such cases, this fortifies the general rule allowing recovery. Conversely, where the foreign law would be stultified by allowing restitution or expressly bars such claims, this may provide a defense to the claim in restitution, provided there is no countervailing Hong Kong public policy reason not to give effect to the foreign law.

Applying these principles, the Court found no reason in comity or public policy to deny restitution to the plaintiff, especially given that restitution would also be possible under Mainland law.

Takeaways

Generally, in cross-border disputes, foreign illegality can add layers of complexity to litigation strategy as courts have to balance comity and justice, ensuring fairness in claims.

This decision provides helpful guidance on how Hong Kong courts would approach restitutionary claims potentially tainted by foreign illegality. It strikes a balance between respecting comity and ensuring justice for parties who have parted with money under failed transactions.  The interplay between comity, justice, fairness and foreign illegality significantly impacts litigation strategy in complex cases, especially those involving restitutionary claims.

For further information or advice on cross-border transactions and restitutionary claims, please contact our Dispute Resolution team.

The full judgment can be accessed here.

The company re-domiciliation regime has taken effect on 23 May 2025. This new regime will allow an overseas company to transfer its domicile to Hong Kong while maintaining its original legal identity and business continuity.

To learn more about the new regime, please refer to the article here authored by our Partner, George Tong, and trainee solicitor, Matthew Lau.