On 27 June 2025, Hong Kong’s Financial Services and Treasury Bureau (FSTB) and Securities and Futures Commission (SFC) jointly published public consultation papers to expand Hong Kong’s regulatory regime for virtual assets (VAs) to include (i) dealing in VAs and (ii) VA custodian services.
Background
The two consultations were published on the back of the second Policy Statement on the Development of Digital Assets in Hong Kong published by the FSTB and SFC just a day before (Policy Statement 2.0). Policy Statement 2.0 introduces a “LEAP” framework to guide Hong Kong’s roadmap to be a VA hub.
While the “ASPIRe” framework introduced by the SFC earlier this year (discussed in our earlier post here) focuses on regulatory compliance and investor protection, the new “LEAP” framework is more commercial and growth-oriented, focusing on high-level initiatives to integrate the VA ecosystem with the real economy. “L” refers to legal and regulatory streamlining and includes the proposed licensing regimes for dealing in VAs and VA custodian services discussed below.
The rest of the LEAP framework covers initiatives to (i) support the tokenisation of real-world assets (building on the recent landmark issuance of tokenized green bonds by the HKSAR Government), (ii) facilitate further payment use cases for stablecoins, (iii) improve collaboration with governments and regulators, and (iv) strengthen talent development efforts.
Current scope of VA regulations
Currently, there is a licensing regime administered by the SFC for VA exchanges and trading platforms (VATPs). Issuers of certain stablecoins will be covered by a new licensing regime administered by the Hong Kong Monetary Authority (HKMA) from August 2025. The HKMA has also proposed new business conduct requirements (including on anti-money laundering / countering the financing of terrorism (AML/CFT)) for stablecoin issuers and other regulated stablecoin activities (please refer to our earlier post here).
In 2024, the FSTB published a consultation paper on a proposed licensing regime for VA over-the-counter (OTC) trading services, which primarily regulated spot trading of VAs. Following that consultation and meetings between regulators and VA industry representatives, there was a recognition that the proposed VA OTC trading regime was not broad enough to address the modes of service delivery, types of dealing activities, and target clientele receiving VA dealing services. The proposed VA OTC trading regime did not address custody services over client assets, which was a key element in many business models.
Building on the 2024 consultation, the FSTB and SFC have proposed (i) a VA dealing licensing regime which covers all VA dealing services (including VA OTC trading) and (ii) a licensing regime for VA custodian services, given the substantial demand in Hong Kong for such services.
Proposed scope of dealing in VAs and VA custodian services
The definition of “dealing in VAs” is proposed to include making or offering to make an agreement with another person, or inducing or attempting to induce another person to enter into or to offer to enter into an agreement:
- for or with a view to acquiring, disposing of, subscribing for or underwriting VAs; or
- the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of VAs or by reference to fluctuations in the value of VAs.
The above scope will not only cover spot trading of VAs (or VAs in exchange for fiat currency), but also more complex dealing activities such as brokerage activities, block trading activities, and relevant activities of advisors (when they take an order to purchase or sell VAs) or asset managers (when they place trade orders to dealers in the course of managing a portfolio of VAs). Peer-to-peer trading between individuals is excluded, but not necessarily for trading platforms facilitating peer-to-peer trading.
The definition of “VA custodian service” is proposed to include safekeeping:
- VAs on behalf of clients; or
- instruments enabling transfer of VAs of clients (including but not limited to private keys) on behalf of clients.
Given that VA custodian service providers may rely on third parties for portions of the custodial services (e.g., storing of key shards or MPC technology), the FSTB and SFC are also requesting industry feedback to more accurately access which persons should be included or excluded from the definition of a VA custodian service provider.
Associated entities of SFC-licensed VATPs will be required to obtain a separate VA custodian service licence under the new regime. Other regulated entities (e.g., banks, SVFs or fund managers) may fall under incidental exemptions if they do not safekeep private keys (or similar instruments), but will otherwise also be required to be licensed to provide VA custodian services.
In addition, the prohibition on “actively marketing” regulated services to the Hong Kong public will also apply to these two new regulated services.
Licence admission requirements
The licensing requirements will generally be in line with existing admission requirements for other SFC-regulated licensees. New licensees may be local subsidiaries or registered as a branch. Applicants must also satisfy fit and proper tests, and appoint at least two responsible officers approved by the SFC (or two executive officers approved by the HKMA) for each relevant regulated activity.
Business conduct requirements
The conduct requirements for new licensees for dealing in VAs and VA custodian services will generally be aligned with those of SFC-licensed VATPs or other SFC-regulated licensees, based on the SFC’s overarching “same activity, same risks, same regulation” principle.
The SFC has indicated what these will entail at a preliminary level, and in particular:
- VA dealing licensees will be subject to requirements which already apply to SFC-licensed VATPs to restrict access to retail investors, including ensuring that only suitable VAs or stablecoins are made available to retail investors;
- VA dealing licensees may be allowed to deal in VAs through non-SFC licensed VATPs so long as those VATPs are subject to sufficient investor protection safeguards (e.g., AML-related requirements or risk disclosures) in their home countries. Details on what safeguards will be considered sufficient will be separately consulted;
- VA dealing licensees will be required to hold client VAs through licensed or registered VA custodians in Hong Kong;
- VA custodians must perform due diligence on all safekept tokens to adequately manage money laundering and terrorist financing risks;
- VA custodians will be required to segregate client VAs, put in place measures for private key management, cybersecurity and business continuity planning, as well as oversee third parties which are appointed to safekeep client VAs on behalf of the VA custodians;
- both types of licensees must appoint individuals performing any regulated activity on their behalf as licensed representatives or relevant individuals (as the case may be);
- both types of licensees will be subject to AML-related requirements in line with SFC-licensed VATPs and other SFC-regulated licensees. They will also be subject to similar business conduct requirements (e.g., relating to financial resources, corporate governance, risk management policies and procedures, record-keeping or investor protection safeguards); and
- separate regulatory requirements will apply to other services (e.g., advisory, asset management, staking, borrowing/lending, margin trading) in line with the above principles.
The SFC has also stated that it will further consult on the range of regulatory requirements that will apply to these new licensees.
Transitional arrangements
There will be no deeming arrangement for pre-existing service providers which currently carry on VA dealing or VA custodian services. Rather, the SFC will implement the licensing regime from the commencement date of the relevant statutory provisions. All industry stakeholders are encouraged to reach out to the SFC (or HKMA as applicable) to initiate pre-application processes, and to obtain clarity on the proposed licensing regime’s commencement date.
There will be expedited licensing approval processes for certain regulated entities, such as VATPs and existing SFC-licensed corporations (or registered institutions) providing VA dealing services, or associated entities of VATPs or banks providing VA custodian services.
The SFC does acknowledge that existing VA custodians have made substantive investments to achieve the necessary scale and sophistication to provide the service, and has indicated that it will facilitate the transitioning of legitimate existing VA custodians to the new licensing regime.
Conclusion
The new consultations serve to plug regulatory gaps in the VA regulatory regime to further Hong Kong’s goal of becoming a premier VA hub. While there will be further consultations on the substantive regulatory requirements, these will take reference from existing regulatory requirements applicable to the traditional financial sector under the “same activity, same risks, same regulation” principle.
It is expected that the SFC will conduct additional follow-up consultations as needed to inform the industry on when the proposed licensing regimes will take effect. Comments on the two consultations are due by 29 August 2025.
Entities which will be subject to the new licensing requirements are advised to undertake the necessary preparatory work beforehand to be in a position to submit their licence applications once the licensing regime comes into effect, and to stand a better chance of obtaining a first-mover advantage in a segment of the financial sector which is a key priority of the Hong Kong Government.
We would be happy to help you navigate Hong Kong’s changing regulatory landscape – feel free to reach out to us anytime.