Since Hong Kong's groundbreaking Stablecoins Ordinance took effect in August 2025, the regulatory landscape has fundamentally shifted for digital asset firms. With over 77 expressions of interest submitted to the HKMA but only a select few expected to secure licenses, the stakes have never been higher.

In this exclusive Q&A, Kristi Swartz, Partner at DLA Piper Hong Kong, provides insider perspective on the critical challenges facing clients—from established financial institutions to innovative fintech startups. Discover the strategic approaches that are working in practice: how firms are structuring reserve assets to meet HKMA's stringent requirements, implementing creative KYC solutions that balance compliance with user experience, and navigating the complex intersection of HKMA stablecoin licensing with SFC virtual asset regulations.

Drawing from extensive client advisory experience, this article reveals the practical compliance strategies, modular operational structures, and regulatory coordination tactics that are proving successful in Hong Kong's demanding dual-regulator environment. Essential intelligence for any organization serious about competing in Asia's premier digital asset hub.

Question 1: Practical Client Guidance on Stablecoin Licensing

With Hong Kong's Stablecoins Ordinance now in effect since August 1, 2025, what are the most common questions and concerns you're hearing from clients - both established financial institutions and fintech startups - about obtaining HKMA licenses for stablecoin operations? What practical steps are you advising clients to take now, and what operational challenges are emerging as firms work to comply with the new mandatory licensing requirements?

Some of the common client concerns that I see include the potentially restrictive selection of licensing applicants. While applicants may communicate their interest to the HKMA should they consider themselves "sufficiently ready", only a handful among the 77+ expressions of interest made to date is expected to cross the hurdle, likely those who apply as a consortium.

Clients are particularly focused on understanding how their proposed use cases, capital structure, and business models align with the HKMA’s robust selection criteria. The reserve asset requirements is a key requirement, as issuers must fully back stablecoins with high-quality, liquid assets at all times, and determining the acceptability and structure of these reserves would a critical consideration. Technology risks must also be managed properly and thoroughly, as applicants must demonstrate robust cybersecurity measures and secure wallet infrastructure, and demonstrate their capabilities in incident response planning, IT governance, and ongoing risk assessments to ensure resilience against cyber threats.

A recommended practical step includes, among others, initiating an early dialogue with the HKMA to assess eligibility and clarify regulatory expectations, and identify potential gaps in readiness. Even for firms who have not yet submitted an expression of interest, we recommend beginning the preparation of key materials — especially the white paper and reserve asset disclosures — to ensure alignment with HKMA’s published standards.

Question 2: Navigating KYC Implementation for Stablecoin Users

Given the industry concerns about the strict KYC rules for stablecoin holders under the new Ordinance, how are you helping clients design compliant user onboarding processes that don't compromise business viability? What creative compliance solutions are you seeing work in practice, and how are international clients adapting their global stablecoin strategies to accommodate Hong Kong's KYC requirements while maintaining competitive user experiences?

KYC is not a new concept, but under the Ordinance, each individual stablecoin holder must undergo identity verification—including those without a customer relationship with the issuer. We are therefore discussing with clients to explore ways to ensure compliance while maintaining commercial practicalities.

Certain compliance strategies we have seen include tiered onboarding models, where some firms are exploring risk-based KYC tiers. For example, low-value users may undergo simplified checks. Additionally, clients are considering outsourcing KYC to specialised vendors, which helps streamline onboarding while maintaining compliance.

There are also a number of creative solutions emerging, such as automated compliance platforms. The integration of no-code AML/KYC tools is helping firms scale compliance without heavy engineering. We are also seeing hybrid models, where some international firms are segmenting their Hong Kong operations to comply locally while maintaining global user flows.

With international clients, many already have a strong understanding of the technology and typical compliance challenges. Some firms are segmenting jurisdictional scope by creating Hong Kong-specific stablecoin products with stricter controls, while offering more flexible options elsewhere. Given the high compliance burden, many firms are also pivoting toward institutional clients, who already meet KYC standards and pose fewer onboarding risks.

Question 3: Multi-Regulator Client Strategy

With your clients now potentially dealing with both HKMA (for stablecoins) and SFC (for VATPs and other VA services), what practical coordination challenges are you helping them navigate? How are you advising clients who want to offer comprehensive digital asset services - spanning stablecoins, trading, and custody - to structure their operations across these different regulatory frameworks? What lessons from your broader fintech practice are proving valuable in this multi-regulator environment?

Clients are increasingly facing the challenge of navigating dual regulatory regimes in Hong Kong: the HKMA’s licensing framework for stablecoin issuance under the Stablecoins Ordinance, and the SFC’s licensing regime for virtual asset trading platforms (VATPs) and custodial services. One of the key challenges is that the HKMA and SFC regimes impose distinct yet sometimes overlapping requirements, particularly in areas such as AML/CFT compliance, cybersecurity, investor protection, and operational resilience

A key concern for clients is how to structure their operations to meet both sets of expectations without duplicating effort or creating regulatory friction. For example, while the HKMA mandates universal KYC for all stablecoin holders, the SFC places emphasis on custody safeguards and insurance arrangements for client assets. Clients are also grappling with the SFC’s “A-S-P-I-Re” roadmap, which introduces strategic expectations that may not align neatly with the HKMA’s prudential supervision model.

To address these challenges, we are advising clients to adopt a modular approach, structuring their operations so that stablecoin issuance, trading, and custody are handled by separate legal entities or business units. This allows for clearer regulatory alignment, operational focus, and accountability. Strategic partnerships are also proving effective, particularly where banks or brokers collaborate with SFC-licensed platforms to offer trading services while maintaining HKMA-compliant issuance and custody operations.

From our broader fintech practice, several strategies have proven particularly valuable in this environment. These include early and proactive engagement with both regulators, establishing formal engagement protocols (such as sandbox participation with the HKMA and pre-licensing consultations with the SFC), and building strong internal compliance cultures. Clients with prior SFC experience or multi-jurisdictional operations are often better positioned to anticipate regulatory divergence and structure accordingly.

We are also helping clients identify and prepare for potential regulatory gaps. For instance, while commodity-linked stablecoins are currently excluded from the HKMA’s framework, our cross-border experience helps clients anticipate how such instruments may be treated in future updates.

Want to contribute to our Q&A series? If you're a legal expert in the web3/AI space and would like to share your expertise by joining our Q&A series, please reach out to hi@databirdjournal.com