Decode Hong Kong's anti-money laundering blueprint: the compliance revolution of stablecoins

Author: SK Lee  

Translated by: Baihua Blockchain  

## Introduction: A New Era for Digital Assets in Hong Kong  

When the *Stablecoin Ordinance* takes effect on August 1, 2025, Hong Kong will officially enter a new phase in the evolution of its digital asset ecosystem. At the core of this transformation lies a landmark set of anti-money laundering (AML) guidelines issued by the Hong Kong Monetary Authority (HKMA). These guidelines are more than a mere checklist of procedures—they represent a deliberately designed, carefully constructed framework aimed at shaping a new generation of licensed, transparent, and globally trusted stablecoins.  

While these guidelines reaffirm familiar regulatory pillars such as Customer Due Diligence (CDD) and Suspicious Transaction Reporting (STR), they introduce a decisive and globally significant requirement: the identity of every stablecoin holder must be *continuously verifiable*. This is not a one-time onboarding check; it is about maintaining an ecosystem where all participants in the value chain are known and identifiable.  

This seemingly simple rule carries transformative scope: licensed stablecoins can only be transferred to wallet addresses confirmed to belong to verified individuals or entities. Verification may be performed by the issuer itself, a regulated financial institution, or a trusted third-party provider. In short, the HKMA envisions a stablecoin environment without anonymous corners, replacing opacity with accountability.  

## Why It Matters: The Global Regulatory Landscape  

For blockchain traditionalists and DeFi purists, such restrictions may seem to close off the open architecture of permissionless systems, replacing the borderless spirit of public ledgers with a licensed "closed-loop" model. But this decision is not arbitrary—it is a sharp response to the international community’s growing scrutiny of anonymous transactions.  

The Financial Action Task Force (FATF), the world’s leading standard-setter for anti-money laundering, has long warned of systemic risks posed by peer-to-peer transactions via "unhosted" or self-custodied wallets. By bypassing regulated Virtual Asset Service Providers (VASPs), these transactions evade traditional KYC controls and obligations under the Travel Rule, which requires sender and receiver identification to accompany all relevant transactions. The HKMA’s new requirements are essentially a preemptive strike against this loophole—embedding compliance rules directly into the nature of the asset itself.  

The Bank for International Settlements (BIS) adds another layer to this argument. Through multiple reports, it highlights the "illusion of decentralization" in many DeFi systems. While infrastructure may be distributed, real decision-making and control often reside with identifiable developers, operators, or governance bodies. In this context, allowing fully anonymous transactions undermines the ability to apply anti-money laundering/counter-terrorist financing (AML/CFT) rules and could threaten financial stability. The BIS argues that for DeFi projects to integrate smoothly and safely with traditional finance, structural gaps in compliance must be closed. Thus, the HKMA’s stance is both a response to today’s global standards and a safeguard for Hong Kong’s ecosystem future.  

## How It Works: Embedding Compliance in Code  

Of course, the challenge lies in practical implementation: how to enforce such rules on public blockchains without undermining the asset’s usability and liquidity?  

The answer is to build compliance into the token’s DNA—making transfers possible only when certain rules are met. Technically, this is achieved through a "permissioned token" architecture that checks wallet eligibility on-chain before settling a transaction. Such designs revolve around whitelisting: transfers succeed only if both the sender’s and receiver’s wallet addresses are pre-approved.  

A well-established and highly relevant framework is ERC-3643, a formal Ethereum token standard optimized for regulated digital assets such as stablecoins and tokenized securities.  

### ERC-3643 in Practice  

ERC-3643 is more than a technical specification; it is a comprehensive compliance framework woven directly into the structure of digital assets. It achieves this by clearly separating the legal and regulatory "rules of the game" from the token’s core transaction logic, while binding them tightly to operate seamlessly. At the heart of this architecture is the *token contract*—the on-chain code representing the stablecoin itself. Unlike traditional tokens, it is programmed to verify certain conditions before a transfer occurs. Instead of immediately moving funds from one wallet to another, the token contract pauses to consult a second layer of infrastructure: the *compliance contract*.  

The compliance contract acts as an automated gatekeeper—a programmable set of instructions for determining whether a transaction is permitted. To make this judgment, it relies on a third critical component: the *identity registry*. This registry is an on-chain directory linking each wallet address to a set of verifiable attributes of its owner, often called "claims." These claims may confirm that the holder has passed KYC checks, indicate their jurisdiction of residence, or record whether their address is flagged for sanctions.  

When someone attempts to send stablecoins, the token contract queries the compliance contract, which in turn cross-references the sender’s and receiver’s claims stored in the identity registry. Only when all required conditions are fully met—such as KYC approval or sanctions clearance—does the transfer proceed. This entire process occurs in real time, with no manual intervention, embedding compliance directly into the speed and certainty of blockchain transactions. It is instant, impartial, and transparent, providing regulators with a living, auditable record of how rules are applied.  

Through this interaction of token, registry, and compliance logic, ERC-3643 transforms regulatory guidelines into self-executing on-chain controls. It makes anonymous transfers nearly impossible, allows problematic addresses to be frozen or restricted instantly, facilitates compliance with Travel Rule obligations, and offers regulators a clear window into how compliance is applied across the ecosystem. In essence, it shifts enforcement from paper policies to the native behavior of the blockchain.  

## Conclusion: Building Bridges, Not Closing Doors  

Hong Kong’s stablecoin regulation is more than a signal of compliance—it signals the city’s intent to become a global hub for regulated digital assets. By requiring identity-verified participation, the HKMA is creating conditions for stablecoins to become trusted, mass-market financial tools, not niche or speculative instruments.  

For issuers, the message is clear: adopting technologies like ERC-3643 is rapidly shifting from "forward-thinking" to an operational necessity. It addresses policy requirements such as the FATF Travel Rule, provides regulators with transparent oversight, and reassures institutional players wary of reputational risks.  

Far from stifling innovation, designs that weave compliance into code expand the realm of legitimate use cases—from retail payments to cross-border settlements—and strengthen the bridge between Web3 innovation and traditional finance.  

In this process, Hong Kong is not turning its back on decentralized finance; it is laying the groundwork for a resilient, trusted, and globally connected stablecoin ecosystem—one the international community can trust and markets can embrace with confidence.  

Looking ahead, a pressing question emerges: If identity verification and wallet address registration become standard practice across FATF member jurisdictions and major financial centers, can this process evolve to be both safer and more user-friendly? The answer may lie in the maturation of blockchain-based decentralized identity (DID) solutions, which promise to give individuals greater control over their personal data while meeting regulators’ stringent demands. Whether such technologies will rise as the preferred bridge between regulatory compliance and the convenience expected by digital asset users remains to be seen.  

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