Mankun Research | Selling U to close positions, collecting U without bottlenecks: Hong Kong Legislative Council's "stablecoin response" delineates the OTC life-and-death line

In the past two months, the debate over whether Hong Kong can “continue to exchange USDT on the street” has become a daily topic in the industry: the Legislative Council passed the “Stablecoin Regulation” in May, and the HKMA will regulate fiat-referenced stablecoins, with the regulation coming into effect on August 1; subsequently, discussions in the market about whether OTC (OTC Trading, exchange shops) can still continue to conduct USDT/USDC transactions in a “store listing/in-person transaction” manner have become increasingly heated. However, the debate was “put to rest” by the regulators in the written response from the Legislative Council on September 10 - the Financial Services and the Treasury Bureau stated clearly in their response (excerpt from the original text): “The 'Stablecoin Regulation' will come into effect on August 1, 2025… Currently, only 'Authorized Providers' can offer specified stablecoins… Virtual asset OTC Trading institutions are currently not classified as 'Authorized Providers' under the 'Regulation', and therefore cannot offer specified stablecoins to retail or professional investors.” (Original text). In other words, the regulatory stance has shifted from “discussing boundaries” to “clarifying positions”: if you sell/buy specified stablecoins to the public in your own name, with merchant quotes or commitments to complete transactions, then it is not on the legally permitted list. This means that regulators want to target the sale of USDT specifically, rather than applying a one-size-fits-all approach to all stablecoin-related businesses. The following is the original text of the Legislative Council Gazette:

First clarify the legal keywords Before further analyzing and drawing conclusions regarding the above announcement, we need to clarify the following legal keywords: “Offer provision” = the act of selling. The legal definition of “offer” is: in the course of business, to make an offer for the other party to “obtain a certain specified stablecoin from you”; it targets your act of giving coins to others, not receiving coins from others. Therefore, the action of “buying only, not selling” itself does not equate to “offer provision”. “Regulated stablecoin”: refers to stablecoins regulated by Hong Kong's “Stablecoin Ordinance”, but as of September 10, no issuer has been licensed, meaning that there currently do not exist any “regulated stablecoins” available for retail sale. “Non-regulated stablecoin”: refers to any stablecoin that is not issued by a licensed issuer under the “Stablecoin Ordinance”, or is not within the specified/regulated scope, collectively referred to as “non-regulated stablecoins”. In other words, until “regulated stablecoins” come into existence, all stablecoins currently circulating in the market are legally regarded as “non-regulated stablecoins”, including USDT and USDC. Recognized providers (five categories): licensed stablecoin issuers, virtual asset service providers licensed by the Securities and Futures Commission, individuals holding stored value payment tool licenses, corporations licensed by the Securities and Futures Commission to conduct Type 1 regulated activities, and recognized institutions. Whether they can be sold also depends on who they are sold to (retail/professional) and what is being sold (regulated/non-regulated). Note: The regulations and this response relate to the seller's offer; “buying/receiving coins” is not directly classified as “offer provision,” but must still comply with AML/KYC, payment and custody intermediaries, and other frameworks. What exactly does this announcement “allow/not allow”? - A table to clarify As of September 10, 2025 (no regulated stablecoins yet).

Two notes:

1. “Buy” refers to receiving coins from customers without providing stablecoins externally; if there are elements of selling such as listing a selling price, committing to a transaction, or giving coins to the other party in one's own name, it will be regarded as “offer provision.”
2. Even if “can be purchased”, you still need to adhere to existing rules regarding anti-money laundering/sanctions screening, payments/SVF/exchange, etc.; in addition, the specialized licensing for VA brokerage/custody is on the way, and future requirements for “client transfer/matching/temporary custody” will be raised. The real focus of the controversy: from “Can it be traded?” to “Are you selling or receiving?” Looking back at the discussions over the past two months, many misunderstandings have been stuck on the question of “does passive matching count as selling?” The written response clarifies the point: OTC Trading does not fall under the recognized providers, so it cannot “offer” a specific stablecoin to retail or professional investors (regardless of whether it is a regulated stablecoin); At the same time, it emphasizes that there are currently no issuers with licenses. In simpler terms: You cannot operate with external U; you only accept U and do not “provide” coins to others, and the rules do not directly restrict you. This also explains why the traditional OTC, which involves “both buying and selling,” has felt a notable “tightening,” while the business of accepting U and converting to fiat settlements can still operate within compliance boundaries. Some are happy, some are sad: the real situation of different entities.
3. Traditional OTC (buy and sell) Bad news is confirmed. As long as you are involved in the delivery of U— even if you consider yourself “passive”— once there are factors such as quoting, promising transactions, or using your own name to provide coins to customers, it triggers the red line of “offer provision”. The more realistic situation is: even if you want to “act as a platform broker”, the SFC's intermediary guidelines require licensed platforms and prohibit self-custody, and currently there are no targets available for “selling regulated stablecoins” to retail. The old model is unsustainable, which is the clearest signal after this round of responses. 2.U Card and the crypto payment institutions that only accept U and fiat settlement In the short term, you are the beneficiary. What you are doing is collecting U (buy) → handing it over to a regulated entity to exchange for fiat → settling with merchants in fiat, without the hand of “providing stablecoins to customers”. This is not within the scope of this response. But do not overlook the three gates: AML/KYC/on-chain screening must be strict; the original frameworks of payment/SVF/exchange must still be followed; and after the establishment of VA brokerage/custody licenses, the thresholds for client transfers/matching/temporary custody will become higher. In other words, just because you are not being monitored today does not mean you won't be tomorrow.
4. Institutions that want to “take the cards positively” Long-term benefits but extremely high thresholds. The issuance of stablecoins and offers is under the HKMA license; “intermediary/broker/custodian” is moving towards independent licensing by the SFC. This dual-track system means that stablecoin offers are still subject to special legal constraints. Those with capital, banking channels, and risk control systems will be able to seize positions in the next round; the more pragmatic route for small and medium-sized institutions is to solidify the “collecting USDT → fiat” process and wait for the new licenses to clear away uncertainties. Why is this response a “watershed moment”? Because it turns ambiguous issues into factual judgments: it depends on whether you are “selling” or “receiving”. The legal provisions on “offers” are quite straightforward, and the response explicitly names the non-recognition of OTC and the reality of “unlicensed”. The emotional debate in the industry stops here, and what remains is compliance engineering: completely severing the appearance of “selling” from products, speech, and settlement chains; and making the chain of evidence from receiving U → the regulated party exchanging for fiat → merchants receiving fiat verifiable and traceable, while reserving interfaces for the upcoming VA brokerage/custody license. Conclusion This written response does not close the door, but rather nails the door frame securely. What regulators want to control is the “selling” hand: offers to provide stablecoins to others must return to the approval system; while the “receiving” hand—receiving stablecoins from the other party and then converting them into fiat through compliant channels for settlement—has not been directly prohibited under the current guidelines. The real dividing line is not whether you call yourself OTC or payment, but whether your business facts will be recognized as a seller's offer. This requires every institution to align the product interface, sales language, settlement paths, and contract terms one by one, making “receiving” and “selling” clearly distinct in evidence. At the same time, don’t forget the time dimension. Today's approach addresses the question of “who can sell,” but VA brokerage/custody licenses are on the way, and future requirements for “client transfers, matchmaking, and temporary custody” will only become clearer and stricter. Rather than getting entangled in the last inch of the gray area, it is better to quickly shape the business into something that can be regulated and verified: delegate the responsibility of “selling” to those who can sell, and refine the channels for “receiving” to withstand inquiries. For institutions that still want to stay in the Hong Kong market long-term, this is not a matter of style choice, but a survival strategy.

Original Author: Lawyer Shao Jiadian