Hong Kong Regulators Warn of Increased Stablecoin Fraud Risk

A senior official from Hong Kong’s Securities and Futures Commission (SFC) has cautioned that the introduction of the city’s new stablecoin regulatory framework has heightened the risk of fraud in the market. Ye Zhiheng, executive director of the intermediaries division at the SFC, advised investors to remain vigilant and avoid making investment decisions driven by hype or short-term price momentum, according to a report by Chinese financial news outlet Zhitongcaijing on August 18.

Ye’s warning comes in the wake of double-digit losses reported by stablecoin companies operating in Hong Kong on August 1, shortly after the new regulations took effect. Analysts characterized the sell-off as a healthy market correction, noting that the compliance requirements for stablecoin issuers were stricter than anticipated. Despite the downturn, some companies experienced share price gains simply by announcing intentions to apply for a stablecoin license.

Regulators Monitor Market Movements Closely

Last Thursday, the SFC and the Hong Kong Monetary Authority (HKMA) issued a joint statement addressing recent market activity linked to stablecoins. The regulators observed that abrupt price movements often followed corporate announcements, media reports, social media posts, or speculation regarding applications for stablecoin issuer licenses or related initiatives.

The authorities emphasized that trading activities would be closely monitored, and any manipulative or deceptive practices compromising market integrity would be met with stringent enforcement actions.

Stablecoin Oversight Becomes a Priority

The warnings coincide with the enforcement of Hong Kong’s Stablecoin Ordinance, which came into effect on August 1 and includes a six-month transition period for compliance. The ordinance criminalizes the offering or promotion of unlicensed fiat-backed stablecoins to retail investors. It also establishes a dedicated public license registry for stablecoin issuers.

In addition to licensing rules, the SFC has introduced immediate guidance on cryptocurrency custody standards. These measures impose strict security requirements and prohibit the use of smart contracts in cold wallet setups, potentially affecting the practices of several leading crypto firms.

As Hong Kong strengthens its regulatory framework, officials are signaling that investor protection and market integrity will remain top priorities in the evolving digital asset landscape.