Summary
- "Issuing a Fiat-Referenced Token is a specified kind of activity" (Financial Services Act 2025, Schedule 1, para. 53B). GMC names stablecoin issuance on the face of its primary financial services statute.
- A Fiat-Referenced Token is a distributed-ledger digital asset that references "a fixed amount of a single fiat currency" and gives the holder a right to redeem from the issuer "upon demand" (s. 258). Baskets and non-redeemable tokens fall outside.
- Section 5A(4) prohibits any regulated activity involving an "algorithmic stablecoin token".
- Issuance is excluded from "Payment Services" (para. 53A(n)); transferring or settling with the token for payments is a Payment Service (s. 258, limbs (f)–(h)) under para. 52.
- Firms may only deal in an "Accepted Fiat-Referenced Token" that GFSO considers meets its requirements (s. 258, s. 5A(1)(b)).
- The Act does not set reserve, backing or redemption-timing rules. Those sit in GFSO Rules under s. 5A, the rulebooks and the Virtual Asset Guidance published by the Gelephu Financial Services Office.
What the Act calls a stablecoin
The Financial Services Act 2025 does not use the word "stablecoin" in its activity list. It uses "Fiat-Referenced Token", which s. 258 defines as "a digital asset, the transfer and storage of which is achieved through the use of distributed ledger or similar technology, the purpose of which is to be used as a medium of exchange with a stable store of value", by:
- "(a) referencing a fixed amount of a single fiat currency; and
- (b) enabling the holder to redeem the token in exchange for the amount of the fiat currency referred to in (a) from its issuer upon demand."
"Fiat Currency" is "government issued currency that is designated as legal tender in its country of issuance" (s. 258).
Four design features are locked in by the definition. The token must run on a distributed ledger or similar technology. It must reference a single fiat currency, not a basket. It must reference a fixed amount of that currency. And the holder must have a right of redemption against the issuer on demand. A token that fails any one of these is not a Fiat-Referenced Token. It may still be a "Virtual Asset", a digital representation of value functioning as a medium of exchange, unit of account or store of value without legal tender status (s. 258), and dealing in it is regulated on that footing, but it cannot be issued under para. 53B.
The Act also defines "E-money" as "a digital representation of Fiat Currency used to electronically transfer value denominated in Fiat Currency" (s. 258), and states that a Virtual Asset is "distinguished from Fiat Currency and E-money". Where a product sits between e-money, stored value and a Fiat-Referenced Token is a classification question to settle with GFSO before the product is built.
Paragraph 53B: the activity
Paragraph 53B of Schedule 1 is one sentence: "Issuing a Fiat-Referenced Token is a specified kind of activity." It sits in Chapter 8 (Money Services) alongside paras 52, 53 and 53A.
Because para. 53B is a specified activity, the General Prohibition applies: no person may carry on the activity "by way of business in GMC" unless it is a Licensed Firm or an Exempt Firm (s. 16(1)). A "Licensed Firm" is a firm holding a Financial Services Licence granted by GFSO under Part 4 of the Act. "By way of business" is defined in Schedule 1, para. 3: engaging in the activity in a manner that itself constitutes carrying on a business, holding oneself out as willing and able to do so, or regularly soliciting others to engage in it. Section 259 treats the activity as carried on in GMC where the issuer's registered or head office and day-to-day management are in GMC, or where it is carried on from an establishment maintained in GMC. Issuing is not carved out of para. 70, so agreeing to issue a token is itself a regulated activity, subject to the non-GMC person exclusion in para. 79.
The relationship with money services
Paragraph 52 makes "Providing currency exchange, Money Remittance or Payment Services" a regulated activity. The s. 258 definitions refer to Fiat-Referenced Tokens repeatedly, and the interaction matters for any issuer.
Issuance is not a Payment Service. Paragraph 53A lists things that "do not constitute Payment Services", and item (n) is "the issuance of a Fiat-Referenced Token". Paragraph 53A(a) likewise excludes Payment Transactions "through the transfer of a Fiat-Referenced Token directly between the Payer and the Payee, without any intermediary intervention".
Using the token for payments is a Payment Service. "Payment Services" in s. 258 includes "(f) the transferring of a Fiat-Referenced Token for the purpose of effecting a Payment Transaction; (g) enabling the settlement of a Payment Transaction effected through the transfer of a Fiat-Referenced Token; [and] (h) the operation of a Payment Account to hold and safeguard Fiat-Referenced Tokens held for the purpose of effecting a Payment Transaction". A "Payment Transaction" is placing, transferring or withdrawing "Money or a Fiat-Referenced Token".
So an issuer that also runs wallets, merchant settlement or a payments network on its own token is likely carrying on two activities: para. 53B for issuance and para. 52 for the payment layer. The connected-services exclusion in para. 53 relieves a Licensed Firm from Providing Money Services only where doing so "is in connection with and a necessary part of" another regulated activity it carries on. Whether the payment layer is a "necessary part" of issuance is a question for GFSO at the business-model stage.
| Function | Regulated activity | Provision |
|---|---|---|
| Minting and redeeming the token | Issuing a Fiat-Referenced Token | Sch 1 para. 53B; excluded from Payment Services by para. 53A(n) |
| Transferring the token to effect a payment, settling payments in it, or holding it in a Payment Account | Providing Money Services (Payment Services limbs (f)–(h)) | Sch 1 para. 52; s. 258 |
| Safeguarding tokens for clients outside a payments context | Providing Custody | Sch 1 para. 43(1)(a) |
| Buying and selling the token as principal or agent | Dealing in Investments | Sch 1 paras 4, 12 |
| Running a venue where the token trades | Operating an MTF | Sch 1 para. 54(1)(a) |
| Peer-to-peer transfer with no intermediary | Not a Payment Service | Sch 1 para. 53A(a) |
What the Act prohibits: algorithmic designs
Section 5A(4) provides: "No person may carry on a Regulated Activity in the GMC involving the issue, sale, purchase, transfer or custody of a Virtual Asset or Fiat-Referenced Token which is an algorithmic stablecoin token, a privacy token, or any digital asset employing similar technology."
This is a statutory prohibition rather than a licensing condition. A token that maintains its peg through algorithmic supply adjustment or an endogenous collateral loop cannot be issued, dealt in or held in custody by a GMC licensed firm, and the "similar technology" wording lets GFSO treat hybrid designs the same way. The redemption right in the definition points the same way: the Act contemplates tokens backed by a claim on the issuer for fiat.
Accepted Fiat-Referenced Tokens and GFSO's powers
The Act separates issuing a token from dealing in it. Section 258 defines an "Accepted Fiat-Referenced Token" as "a Fiat-Referenced Token that, in the opinion of the Regulator, meets the requirements that permit a Regulated Activity to be carried on in relation to it". Under s. 5A(1)(b)(ii) GFSO may by Rules prescribe "the requirements and factors" for that decision. GFSO may also prescribe the requirements applicable to a Licensed Firm conducting any regulated activity in relation to Fiat-Referenced Tokens (s. 5A(1)(a)) and "such additional requirements as the Regulator considers appropriate" (s. 5A(1)(c)).
Two consequences follow from this classification. Being licensed to issue is not the same as having the token accepted for dealing and custody by other licensed firms; the issuer will want both. And GFSO can tailor requirements to the individual issuer by written notice under s. 5A(2), excluding or adding obligations "where the Regulator is satisfied that it is in the interests of GMC to do so".
Section 5B adds a direction power. Where GFSO is satisfied that the issue, sale, purchase, transfer or custody of a Fiat-Referenced Token would contravene or has contravened the Act, or that it is in the interests of GMC, it may direct that no such dealings take place for a period it thinks appropriate (s. 5B(1)), with immediate effect if the direction says so (s. 5B(2)), subject to written notice and representations (ss. 5B(3)–(5)). An issuer's continuity plan should assume this power exists.
Reserves, redemption and disclosure: what the Act does and does not say
The Act says little about reserves. The definition requires that the holder can redeem "the amount of the fiat currency" from the issuer "upon demand". That implies the issuer must be able to meet redemptions in fiat on demand, but the statute does not prescribe the composition of backing assets, where they are held, whether they are segregated, how often they are attested, or the timing and fees of redemption. Those matters are for GFSO Rules under s. 5A, the prudential and conduct rulebooks and the Virtual Asset Guidance published by GFSO, which an issuer should obtain from GFSO before finalising a product design.
Two statutory provisions bear on the reserve question indirectly:
- Client Money Rules. Section 4(1) empowers GFSO to make Rules for the handling of "Client Money" held by a Licensed Firm, including provision "which results in that money being held on trust". GEN 6.6.1(3) requires a firm permitted to hold Client Money to procure a Client Money Auditor's Report, and GEN 6.6.6 ties that report to COBS Chapter 14, requiring confirmation that Client Money "is identifiable and secure at all times". Whether fiat received against token issuance is Client Money is a matter for the Rules and the licence.
- Deposits. Accepting Deposits (para. 38) is a regulated activity where money received by way of deposit is lent to others or finances the recipient's other activities. A "Deposit" is a sum repayable on demand or at an agreed time (para. 85). The Act does not expressly say whether fiat received for a redeemable token is a Deposit; para. 42(3), which disapplies the Deposit definition for sums received by firms licensed for listed activities, does not list para. 53B. An issuer that intends to invest reserve assets should raise this with GFSO explicitly.
On disclosure, s. 19A prohibits misleading, deceptive, fraudulent or dishonest conduct in relation to a Fiat-Referenced Token, and s. 102 makes it a contravention to make a statement known or recklessly false or misleading to induce a person to acquire or dispose of an Accepted Virtual Asset or Specified Investment. Statements about backing and redemption are the obvious risk area.
Marketing the token
Section 18(1) prohibits communicating, in the course of business, an invitation or inducement to "Engage in Investment Activity" unless the communicator is a Licensed Firm or Exempt Firm, the content is approved by one, or an exemption in Schedule 2 applies. Section 18(3) extends this to communications from outside GMC that are "capable of having an effect in GMC". Schedule 2, para. 4 exempts communications made only to, or directed only at, Licensed Firms, Licensed Bodies or persons outside GMC, subject to conditions. Token launch websites, wallet apps and merchant onboarding material all need review against s. 18 before publication (see our guide to financial promotions in GMC).
Becoming licensed
The route is the standard GFSO process published by the Gelephu Financial Services Office (see our guide to the GFSO application process): initial meeting, business model presentation, application with a non-refundable fee, review, In-Principle Approval with pre-conditions, satisfaction of those conditions and issue of the licence. The Threshold Conditions are set by GFSO in Rules under s. 28; GEN 5.2.7 requires adequate financial resources, fitness and propriety, capacity to be supervised and adequate compliance arrangements. GEN 5.5.1 requires a Senior Executive Officer, Compliance Officer and Money Laundering Reporting Officer, resident in GMC or Bhutan (GEN 5.5.2). Capital figures are not in the Act; Basnet Law can confirm them with GFSO.
Practical checklist / Next steps
- Test the token design against the s. 258 definition: distributed ledger, single fiat currency, fixed amount, redemption from the issuer on demand.
- Confirm the stabilisation mechanism is not algorithmic or "similar technology" (s. 5A(4)).
- Map every function beyond minting and redemption, wallets, settlement, exchange listing, custody, to paras 52, 43, 4, 12 or 54, and decide whether para. 53 applies.
- Obtain the Virtual Asset Guidance and relevant rulebooks from GFSO and design the reserve, segregation and redemption policy to them, including the Client Money (s. 4, COBS Chapter 14) and Deposit (paras 38, 85) analysis.
- Draft disclosures with ss. 19A and 102 in mind; state nothing about backing that cannot be evidenced.
- Plan for acceptance of the token as an Accepted Fiat-Referenced Token and for a possible s. 5B direction.
- Review all promotional material against s. 18 and Schedule 2.
Frequently asked questions
Is stablecoin issuance legal in GMC?
Yes, as a licensed activity. Schedule 1, para. 53B of the Financial Services Act 2025 makes "Issuing a Fiat-Referenced Token" a specified activity, so a Financial Services Licence from GFSO covering that activity is required (s. 16(1)). Algorithmic stablecoins are prohibited by s. 5A(4).
Can I issue a token pegged to a basket of currencies?
It is not treated as a Fiat-Referenced Token. The s. 258 definition requires a reference to "a fixed amount of a single fiat currency". A basket token would need to be analysed as a Virtual Asset or another instrument, and GFSO's view should be obtained.
Do I need a money services licence as well as para. 53B?
Issuance alone is excluded from Payment Services by para. 53A(n). If the issuer also transfers tokens to effect payments, settles payments in the token or operates Payment Accounts holding tokens, those are Payment Services under para. 52, unless the para. 53 connected-services exclusion applies.
What reserve requirements apply?
The Act requires redemption "upon demand" but does not prescribe reserve composition, segregation or attestation. Those requirements come from GFSO Rules under s. 5A, the rulebooks and the Virtual Asset Guidance, and should be obtained from GFSO directly.
Key takeaways
- Para. 53B makes stablecoin issuance a named regulated activity in GMC's primary statute.
- The s. 258 definition fixes the design: single fiat currency, fixed amount, redeemable on demand from the issuer.
- Algorithmic stablecoins are prohibited by s. 5A(4).
- Issuance is not a Payment Service (para. 53A(n)), but payment use of the token is (para. 52).
- Reserve and redemption detail sits in GFSO Rules, the rulebooks and the Virtual Asset Guidance, not in the Act.
This article is general information about the law of the Gelephu Mindfulness City Special Administrative Region as at the date above. It is not legal advice and does not create a lawyer–client relationship.
You may contact Basnet Law at basnet@basnetgmc.com or office@basnetgmc.com for any legal queries related to GMC.
References
- Financial Services Act 2025, ss. 4, 5A, 5B, 16, 18, 19A, 28, 102, 258 (definitions of Fiat-Referenced Token, Accepted Fiat-Referenced Token, Fiat Currency, E-money, Virtual Asset, Payment Services, Payment Transaction), 259; Schedule 1, paras 3, 4, 12, 38, 42(3), 43, 52, 53, 53A, 53B, 54, 70, 79, 85; Schedule 2, para. 4
- GEN Rulebook 2026 (Version 1.0), Rules 5.2.7, 5.5.1, 5.5.2, 6.6.1, 6.6.6
