Hong Kong’s regulatory landscape for financial innovation continues to evolve rapidly, offering fund managers exciting new avenues for raising capital and enhancing product offerings. Two recent developments stand out: the granting of two stablecoin issuer licences and the ability to offer secondary trading of tokenised SFC-authorised investment products to the public in Hong Kong. For the latter, please see our article in this Newsletter. These changes broaden the scope for fund managers to access new investors, increase liquidity, and innovate in fundraising strategies.
How to leverage stablecoins?
A stablecoin is a type of virtual asset whose value is pegged to a reference asset, such as fiat currency. Prominent examples include USDT and USDC, which are typically redeemable 1:1 for U.S. dollars and used for payment and settlement within the digital ecosystem. Currently, stablecoin issuers licensed by the Hong Kong Monetary Authority (HKMA) may only issue Hong Kong dollar-backed stablecoins (HKD-stablecoins). They are required to keep reserves equal to every HKD-stablecoin they issue, protect those reserves, and provide a mandatory subscription-and-redemption mechanism to ensure convertibility. This makes HKD-stablecoins a reliable digital instrument for payments and settlement.
In principle, when a fund’s shares or units are tokenised, they are converted into digital tokens on a blockchain (Tokenised Fund Units) and are capable of being exchanged with other virtual assets. In Hong Kong’s fund market, this functionality with ETH and BTC via in-kind subscriptions and redemptions, is reflected in certain exchange-traded virtual asset funds. If permitted in the future, stablecoins may also serve in this capacity.
The ability to accept stablecoins (including HKD-stablecoins) as payment for Tokenised Fund Units, via in-kind subscriptions in the primary market and settlement in the secondary market, may widen the investor pool and improve liquidity. The use of stablecoins may also eliminate the need for multiple intermediaries, reducing transaction costs and administrative burdens. Investors can subscribe to Tokenised Fund Units digitally and with near-instant settlement, accelerating the availability of capital for investment deployment.
What are the key considerations for fund managers?
Although their value is fiat‑backed, stablecoins are digital instruments issued by private entities, and in the case of HKD‑stablecoins, by HKMA‑licensed issuers. This contrasts with cash at a bank or its digital form (i.e. tokenised deposits) which settle through established interbank clearing and settlement systems. Using stablecoins for fund settlement therefore, introduces new considerations around issuer connectivity, platform integration, and custody.
- Connectivity is the key: HKD-stablecoins are available to the issuer’s “customers” who must satisfactorily complete the required onboarding process. The qualified customers are deemed to be holders (albeit acting as nominees) of the HKD-stablecoins and have access to the issuer’s subscription and redemption platform. Whether the Tokenised Fund Units are distributed directly by the fund manager (or its affiliate), or indirectly by a third-party distributor, a digital account or wallet must be maintained with the issuer or a designated provider. Some issuers permit their stablecoins to circulate in a closed-loop environment on their own chains, whilst others allow cross-chain transactions. Fund managers need to evaluate the specific capabilities of an HKD-stablecoin and its issuer, including whether it operates on a closed network or allows cross-chain transactions.
- Expanding distribution/trading network: Securities and Futures Commission (SFC) licensed intermediaries that are permitted to deal in virtual assets, such as Virtual Asset Trading Platforms (VATPs), virtual asset brokers and certain banks (collectively, VA Intermediaries), are natural bridges between tokenised investment products and investors. In practice, however, they can facilitate the purchase, sale, or trading in Tokenised Fund Units using HKD-stablecoins only when both are listed on their platform or client interface. Like traditional fund distributors, VA Intermediaries have their own product listing processes and will support funds that their infrastructure can accommodate. Fund managers should assess whether a VA Intermediary can support their fund settlement stablecoin, and whether the Tokenised Fund Units are intended for primary subscriptions/redemptions or for secondary retail trading, as the latter generally confines the option to the VATP’s automated trading venue.
- Custody supports: Once stablecoins are accepted by a fund and settlement is complete, they become the fund’s assets. Even if the fund does not otherwise invest in virtual assets, its trustee or custodian remains responsible for safekeeping those stablecoins. Fund managers should therefore engage trustees or custodians early to confirm the custody model, identify eligible counterparties, and address any contractual or operational changes required. In addition, Hong Kong will introduce a virtual asset custodian licensing regime, which may affect the eligibility of existing custodians or sub‑custodians to hold stablecoins for funds that they custody.
- HKD-stablecoin as eligible collateral: The SFC is developing a framework that allows VATPs to offer perpetual contracts (Perps), which are effectively derivative instruments that track the price of an underlying asset or index with no expiry. Perps will be tradable on-platform only and on margin. The Perps offering will be subject to SFC-prescribed requirements, including restriction to professional investors, maintenance of designated margin collateral. Although in the near term, Tokenised Fund Units are unlikely to be linked to Perps for trading on margin, HKMA regulated fiat‑backed stablecoins (including HKD‑stablecoins) are eligible to be used as margin collateral for Perps. This expands the utility of HKD‑stablecoins and may foster future product innovation between HKD‑stablecoins and Tokenised Fund Units.
To explore how fund managers may work with fund depositaries and VATPs on this issue, join our panel “The other side of the chain: How do they interact with asset managers under current regulations” at our Annual Investments Products and Regulatory Forum on 13 May 2026 (by invitation only).
