Hong Kong stablecoin rules impose strict KYC and AML requirements that, according to DBS Hong Kong CEO Sebastian Paredes, will largely block the use of stablecoins for onchain derivatives trading by preventing anonymous or pseudonymous counterparties from participating on public blockchains.
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Immediate impact: New rules restrict anonymous onchain derivatives use.
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DBS will expand regulated stablecoin services in Hong Kong rather than pursue onchain derivatives products immediately.
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Regulatory shift began Aug. 1 with criminalization of promoting unlicensed stablecoins and a public issuer registry.
Meta description: Hong Kong stablecoin rules curb onchain derivatives via strict KYC/AML, says DBS Hong Kong CEO Sebastian Paredes — learn how banks will adapt. Read more.
DBS Hong Kong CEO Sebastian Paredes warned that Hong Kong’s new stablecoin KYC and AML rules will largely block their use in onchain derivatives trading.
Hong Kong’s stablecoin regulatory framework limits their use for derivatives trading on blockchain networks, according to Sebastian Paredes, CEO of DBS Hong Kong.
According to a Friday report by local news outlet The Standard, Paredes said that Hong Kong regulations on stablecoin Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements will significantly restrict their use for onchain derivatives trading. He said the bank would monitor developments, but focus instead on building broader stablecoin capabilities in Hong Kong.
The new rules, rolled out on Aug. 1, immediately criminalized the promotion of unlicensed stablecoins and established a public registry of authorized issuers. Industry participants noted market disruption, with stablecoin firms in Hong Kong reporting double-digit losses after the framework’s introduction.
DBS Bank in Hong Kong. Source: Wikimedia
How do Hong Kong stablecoin rules affect onchain derivatives trading?
Hong Kong stablecoin rules tighten KYC and AML obligations to the extent that many onchain derivatives workflows cannot meet compliance without offchain identity controls. Exchanges and institutional counterparties face practical barriers to settling derivatives on public blockchains while preserving required customer due diligence.
Why will KYC and AML limit derivatives use on public blockchains?
Regulators require verifiable counterparty identity and transaction monitoring that public onchain environments often do not provide. KYC/AML rules increase compliance costs and may criminalize promotional activity for unlicensed issuers, reducing available counterparties for onchain derivatives trading.
DBS is weighing these constraints while advancing tokenized products that can operate under regulated custody and identity controls. The bank has emphasized a controlled approach, prioritizing compliance and institutional-grade tokenized services over immediate onchain derivatives offerings.
What is DBS’s experience with crypto and tokenization?
DBS has a multiyear track record with blockchain and tokenization. The local DBS branch reported nearly 492 billion Hong Kong dollars (about $63.2 billion) in deposits last year. DBS Group is the largest bank in Southeast Asia by assets, with roughly 842 billion Singapore dollars (about $620 billion).
The bank recently partnered with Franklin Templeton and Ripple to launch tokenized trading and lending services using the XRP Ledger. DBS also rolled out tokenized structured notes on the Ethereum blockchain and manages the US dollar reserve for the Global Dollar (USDG).
How will DBS adapt its strategy under the new rules?
DBS plans to build broader stablecoin capabilities under a regulated model in Hong Kong while monitoring how the market and rules evolve. The bank is also expanding tokenized products and institutional services that can meet stringent KYC/AML obligations.
Frequently Asked Questions
Will Hong Kong stablecoin rules ban onchain derivatives trading?
The rules do not explicitly ban derivatives, but strict KYC/AML and criminalization of promoting unlicensed stablecoins make anonymous onchain derivatives trading effectively impractical under current compliance standards.
How is DBS responding to the regulatory change?
DBS is pausing aggressive onchain derivatives ambitions in Hong Kong and reallocating effort to build regulated stablecoin capabilities and tokenized institutional services that satisfy KYC/AML requirements.
Can tokenized assets still be launched in Hong Kong?
Yes. Tokenized assets that incorporate regulated custody, verified counterparty identity, and issuer licensing can be launched, provided they meet the new framework’s requirements.
Key Takeaways
- Regulatory impact: Hong Kong’s KYC/AML stablecoin rules significantly constrain anonymous onchain derivatives.
- DBS strategy: DBS Hong Kong will prioritize regulated stablecoin services and tokenized institutional offerings over onchain derivatives for now.
- Market response: Stablecoin firms in Hong Kong reported material losses after the framework; firms must adapt compliance and product design.
Conclusion
Hong Kong stablecoin rules have reshaped how institutions can use stablecoins for derivatives trading. DBS Hong Kong and other banks are pivoting to regulated tokenized services and enhanced compliance workflows. Expect continued market adjustments as issuers register and firms design products to meet the new KYC/AML standards.
Publication date: 2025-09-26. Updated: 2025-09-26.
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