On 27 June 2025, the Financial Services and the Treasury Bureau (FSTB) and the Securities and Futures Commission (SFC) issued a joint consultation to propose new licensing regime for dealing and custody services involving virtual asset (VA). This builds on the FSTB’s 2024 consultation on regulating over-the-counter (OTC) VA trading (see our previous newsletter dated 27 February 2024).
The proposed licensing framework has now been expanded to cover a wider range of VA broker-dealer activities. A separate licensing regime specifically for VA custodians will also be created. This will impact not merely the existing VA dealers and custodians whose business operations are currently not under the regulatory remit, but also the traditional financial intermediaries that involve VAs in their business operations:
- VA OTC traders may not be exempt from the proposed VA dealing licensing requirements if they trade VAs back-to-back as inter-dealer brokers. The proposed VA dealer licence will however help them resolve the VA-to-VA conversion issue, which is not currently addressed under the existing Money Services Operator licensing regime.
- Type 1 licensed corporations authorised to trade VA for clients under an omnibus account arrangement may have a new option to access to foreign regulated VA exchanges. They will have new licensing obligations for providing VA trading services for clients and holding client VAs via the VA omnibus accounts.
- Type 9 asset managers for funds or discretionary accounts investing in VAs (whether or not above the 10% gross asset value threshold) will be required to keep client VAs in Hong Kong with licensed VA custodians. Type 9 private VA fund managers currently using offshore VA exchanges as execution venues for their funds will need to restructure the custody arrangements.
- Type 13 intermediaries acting as the top-level custodians for SFC-authorized VA funds (including spot VA exchange traded funds) will need to revisit their VA sub-custody model. They may no longer be able to rely on the sub-custodians’ SFC licence status, as the associated entities of SFC-licensed VA trading platforms (VATPs) and banks are required to obtain additional licences or registrations for safekeeping VAs for the funds.
The legislative proposals (as summarized below) aim to strengthen Hong Kong’s position as a global digital asset hub by enhancing liquidity in digital asset trading and diversifying product offerings. Aligning with its ASPIRe roadmap, the SFC will be the primary regulator responsible for shaping and implementing the new licensing regime. The consultations will close on 29 August 2025. Those affected by the proposed changes should consider providing feedback during the public consultation period.
1. Two new regulated services requiring SFC licences
Under the proposed licensing regime, a person who provides the following services by way of business in Hong Kong, or actively marketing the following services to the Hong Kong public will require an SFC licence:
VA dealing service
The proposed definition mirrored the existing dealing type of regulated activities under the Securities and Futures Ordinance and refers to the “making or offering to make, or inducing or attempting to induce another person to enter into or to offer to enter into, an agreement for the acquisition, disposal of, subscription for or underwriting of VAs, or an agreement 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 the fluctuations in the value of VAs.” This will cover online and offline services of:
- spot trading of VAs (excluding peer-to-peer trading of VAs between individuals),
- conversion of a VA to another VA or fiat currency, and
- VA brokerage activities (such as block trading activities).
Licensed VA dealers are expected to hold client VAs at licensed/registered VA custodians in Hong Kong, while they may be allowed to use foreign regulated VA exchanges that are not licensed with the SFC for executing client trades. For token offerings to retail investors, licensed VA dealers will need to align with the standards for SFC licensed VATPs, such as only providing large-cap tokens and stablecoins issued by Hong Kong Monetary Authority (HKMA) licensed issuers to retail clients.
Existing SFC licensees or registrants (including licensed VATPs and VA fund managers) will need additional licences to provide VA dealing services. Separate regulatory requirements will be formulated for other services such as advisory, asset management, staking, borrowing/lending, and margin trading.
VA custodian service
The proposed definition covers the safekeeping of:
- VAs on behalf of clients; or
- instruments enabling transfer of VAs of clients, which term of intends to capture the instruments similar to private keys, such as smartcards, authentication credentials for accessing the private keys which would enable transfer of client VAs.
Functions that are part and parcel of the VA service, such as the deposit and withdrawal of client VAs and carrying out settlement instructions of licensed intermediaries for VA trading activities, will be in-scope VA custodian service. Accordingly, the associated entities of SFC licensed VATP, HKMA authorised banks (and their subsidiaries) or stored-value facility (SVF) providers and licensed asset managers who hold VAs for their clients will need to be additionally licensed or registered for providing VA custodian services. Other ancillary services (e.g. staking) may be allowed subject to additional approval.
Self-custody of VAs, such as bank security vaults storing encrypted / de-activated back-up of private keys; security companies storing encrypted / de-activated back-up of private keys; and technical service providers that support the provision of the VA custodian service but do not safekeep the private keys (or similar instruments) themselves (e.g. the service of providing communication or information technology networks) will be carved out of the definition. The definition will be refined based on the public feedback on various business models, the involvement of third parties, and technology infrastructure setups.
2. Eligibility requirements
Applicants for VA dealer/custodian licences (excluding banks and SVFs) must:
- be locally incorporated or registered in Hong Kong under the Companies Ordinance,
- appoint at least two responsible officers approved by the SFC or executive officers approved by the HKMA,
- demonstrate compliance with AML/CFT and other regulatory requirements, and
- satisfy the fit and proper requirements.
Other key regulatory requirements include:
| Financial resources | Licensed VA dealer (other than a bank): Maintain a minimum paid-up capital of HK$5 million, a minimum liquid capital of HK$3 million, and excess liquid capital equivalent to at least 12 months of its actual operating expenses.A licensed VA custodian (other than a bank): Maintain a minimum paid-up capital of HK$10 million and a minimum liquid capital of HK$3 million. |
| Knowledge and experience | Have proper corporate governance structure staffed by personnel with the necessary knowledge and experience. |
| Risk management | Implement appropriate risk management policies and procedures for managing AML/CFT and other risks arising from its activities that are commensurate with the scale and complexity of its business. |
| Financial reporting and disclosure | Observe the prescribed auditing and disclosure requirements and submit audited accounts. |
| Conduct of business | Act honestly, fairly, with due skill, care and diligence, in the best interests of its clients and the integrity of the market, as well as comply with the applicable statutory and regulatory requirements. |
| Information and notifications | Submit a wide range of information (for example, the details in respect of wallet addresses used in their course of business, the scope and nature of the business carried on or to be carried on, and the types of services provided or to be provided) as well as ensure that the submitted information remains up-to-date. |
| Record keeping | Licensed VA dealer: Maintain proper records in relation to its business activities, which will be accessible for regulators’ monitoring.Licensed VA custodian: Maintain proper records of transactions and fund flows which will be accessible for regulators’ monitoring. |
| Proper protection of client assets | Licensed VA dealer: Implement additional measures include proper segregation of client assets and may include safekeeping client assets with a licensed or registered VA custodian in Hong Kong.Licensed VA custodian: Maintain robust internal controls for oversight of delegates or third party, or safekeeping of private keys. |
| Other investor protection safeguards | Assess clients’ VA knowledge, to provide clients with adequate training, to conduct client risk assessments and risk profiling, to set client exposure limits, to ensure clients’ suitability and to prevent, avoid and disclose actual or potential conflicts of interest (for licensed VA dealer only). |
3. Transitional arrangements
The new licensing regime will be effective upon commencement of the legislative amendments.
- For pre-existing VA OTC service providers, there will be a six-month’s transitional period for them to continue the existing operations if they submit a licence application within the first three months after commencement date of the new licensing regime. They can either be (i) licensed to carry out the new VA dealing regulated activity upon the end of the transitional period, or (ii) granted a “deemed licence” beyond the transitional period, pending a final decision on their licence applications.
- For pre-existing VA custodians, no deeming arrangements are proposed.
All existing VA dealers and VA custodians are encouraged to engage the SFC or HKMA for pre-applications, which may qualify for expedited process.
