Hong Kong SFC Flags Rising Fraud Risks Under New Stablecoin Regulations

Last updated on August 26th, 2025 at 05:05 pm

A senior Hong Kong regulator has cautioned that the city’s newly implemented stablecoin rules may be fueling fraud risks, as firms race to align themselves with the regime.

According to an August 18 report by Chinese outlet Zhitongcaijing, Ye Zhiheng, executive director of the Securities and Futures Commission’s (SFC) intermediaries division, said fraud threats have escalated since Hong Kong’s Stablecoin Ordinance came into effect on August 1. He urged investors to stay alert and avoid chasing hype or price momentum surrounding the sector.

Ye’s comments follow a turbulent start for companies tied to the stablecoin market. On August 1, when the new framework kicked in, several Hong Kong-listed stablecoin-related firms posted double-digit losses. Analysts described the sharp drop as a necessary correction, noting that the licensing requirements turned out to be tougher than anticipated. Still, some companies have since seen their stock prices spike merely by announcing plans to apply for a stablecoin license.

Responding to such swings, the SFC and the Hong Kong Monetary Authority (HKMA) issued a joint statement last Thursday, warning that “abrupt market movements” were being driven by announcements, media coverage, social media speculation, or disclosures of stablecoin-related initiatives. The regulators said they would closely track trading activity and would not hesitate to clamp down on manipulative or deceptive practices that could undermine market integrity.

The Stablecoin Ordinance criminalizes the unlicensed offering or promotion of fiat-backed stablecoins to retail investors and sets out a six-month transition window for compliance. It also created a public registry of licensed issuers, marking a major step in Hong Kong’s bid to build a regulated stablecoin ecosystem.

In parallel, the SFC has tightened oversight on digital asset custody. New rules introduced last week set out stringent security standards and explicitly ban the use of smart contracts in cold wallet systems — a restriction that may clash with current practices at several large crypto firms.

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