Hong Kong’s Crypto Ambitions Hit Resistance
Hong Kong’s drive to become a global digital asset hub has hit a critical crossroads. The city’s securities industry is pushing back hard against proposed regulatory changes that would require traditional asset managers to obtain full virtual asset licenses—even for minimal crypto exposure.
At the center of the debate is a plan that could force a portfolio manager with just 1% allocated to Bitcoin to comply with the same licensing requirements as a fully crypto-focused firm.
Why the Industry Is Alarmed
On January 20, the Hong Kong Securities and Futures Professionals Association (HKSFPA) formally objected to the proposals, arguing that scrapping the current 10% crypto exposure threshold creates a disproportionate compliance burden.
The group described the approach as “all or nothing,” warning it could discourage traditional fund managers from even testing the waters in digital assets. According to the association, the move directly contradicts the government’s stated ambition of bridging Web3 and traditional finance.
How the Rules Work Today
Under Hong Kong’s existing framework, introduced in November 2018:
Firms with a Type 9 Asset Management License can allocate up to 10% of a fund to crypto
Managers must notify the Securities and Futures Commission (SFC)
No additional licensing or compliance obligations apply
This setup has allowed hedge funds, private equity firms, and asset managers to cautiously explore crypto while maintaining regulatory oversight.
What’s Changing Under the Proposal
The proposed overhaul would eliminate the threshold entirely, replacing the notification model with a separate licensing regime under Hong Kong’s Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) laws.
The stakes are high:
Managers operating without the new license could face up to 7 years in prison
Fines could reach HK$5 million
The SFC argues the stricter approach prevents firms from structuring investments to sidestep oversight and ensures consistent investor protection across the market.
Custody Rules Add Another Layer of Concern
Beyond licensing, the HKSFPA also criticized proposed custody requirements, which would limit asset holding to SFC-licensed providers only.
The group warned this could be unworkable for private equity and venture capital funds, especially those investing in early-stage tokens that local custodians may not yet support.
Part of a Bigger Digital Asset Strategy
These proposals are part of Hong Kong’s broader push to cement its status as a leading digital asset hub. Financial Secretary Christopher Hui has called the new licensing regimes a major step toward strengthening the city’s legal framework for crypto.
Since launching its crypto trading platform regime in June 2023, Hong Kong has rapidly expanded oversight, with a regulatory roadmap that now includes 12 initiatives, covering areas like custody services and staking.
What Happens Next
The consultation period closes on January 23, with authorities aiming to introduce legislation to the Legislative Council in 2026. Notably, no transitional arrangements have been proposed so far.
That means asset managers would need to:
Secure the new license before the rules take effect, or
Suspend all crypto-related activities until approval is granted
The HKSFPA is urging regulators to restore the 10% threshold and introduce a grace period to help existing managers adapt.
A Delicate Balancing Act
Hong Kong now faces a crucial test: how to tighten oversight without choking innovation. As the city races to attract digital asset firms, the outcome of this debate could determine whether traditional finance embraces crypto—or retreats from it altogether.