On 27 May 2026, the Securities and Futures Commission (SFC) updated its Circular on SFC-authorised funds with exposure to virtual assets (Circular).
The SFC has also updated the Terms and conditions for licensed corporations or registered institutions which manage portfolios that invest in virtual assets (Terms and Conditions), as appended to the Circular on provision of Relevant Stablecoin service by virtual asset trading platforms and licensed corporation, in May 2026.
This article summarises the key updates to the Circular and the Terms and Conditions.
Updates to the Circular
The Circular sets out the SFC requirements for authorising investment funds with more than 10% net asset value (NAV) exposure to virtual assets (VA) for public offerings in Hong Kong (SFC-authorised VA Funds), including their permitted VA-related activities. The updated Circular now clarifies that these requirements do not apply to SFC-authorised funds’ exposure to fiat-referenced stablecoins which are issued by licensed issuers under the Stablecoins Ordinance (Relevant Stablecoins) and tokenised deposits.
Guiding principles for investment in Relevant Stablecoins and/or tokenised deposits
For SFC-authorised funds which may hold Relevant Stablecoins and/or tokenised deposits, the general guiding principles are outlined in the new FAQ 20G in the updated Frequently Asked Questions on the Code on Unit Trusts and Mutual Funds, which include the following:
(a) treatment as cash equivalents: holdings in Relevant Stablecoins and tokenised deposits are subject to the same investment restrictions as cash deposits under the UT Code (e.g. 7.1B of the UT Code). This means they would be subject to similar investment restrictions concerning diversification and counterparty limit applicable to cash deposits;
(b) custody arrangement: the trustee/custodian of an SFC-authorised fund may only delegate the custody of Relevant Stablecoins and tokenised deposits to (i) an SFC-licensed Virtual Asset Trading Platform (VATP); (ii) an authorised institution (AI) (or a subsidiary of a locally incorporated AI) which meets the expected standards issued by the HKMA from time to time; or (iii) such other entities acceptable to the SFC. The inclusion of category (iii) provides flexibility on the custody arrangement as the SFC may allow other entity acceptable to it as delegate custodian of such assets;
(c) disclosure to investors: the fund’s offering documents (including the KFS) must disclose the amount of Relevant Stablecoins and tokenised deposits that it may hold, and the key features and risks associated with them;
(d) reporting: the SFC-authorised fund’s interim and annual reports must disclose the total amount of Relevant Stablecoins and tokenised deposits it holds as a proportion of its NAV.
Prior consultation with the SFC is required for (i) new funds seeking authorisation that intend to hold Relevant Stablecoins and tokenised deposits; or (ii) existing SFC-authorised funds that plan to obtain exposure to such assets. Save for such prior consultation, the guiding principles above are not applicable to Recognised Jurisdiction Schemes (including UCITS funds) and those under mutual recognition of funds arrangements.
In addition, managers of SFC-authorised funds which may hold Relevant Stablecoins and/or tokenised deposits may be subject to additional terms and conditions to be imposed by the SFC’s Intermediaries Division (see further details below).
Updates to the Terms and Conditions
Under the Joint Circular on intermediaries’ virtual asset-related activities (Joint VA Circular) issued by the SFC and HKMA on 22 December 2023, fund managers which provide asset management services to a fund which stated investment objective is to invest in VA or intends to invest 10% or more of its gross asset value in VA are subject to additional requirements set out in the Terms and Conditions, which will be imposed by the SFC (and in consultation with the HKMA, where applicable) as licensing or registration conditions.
Notwithstanding the revision to the Circular (as set out above), the Joint VA Circular remains unchanged. The Terms and Conditions however, have been updated. Key amendments include the introduction of a new definition on “Relevant Stablecoin” (i.e. a specified stablecoin the issue of which is authorised by a licence granted under the Stablecoins Ordinance (Cap. 656)) and carve-outs from certain requirements under the Terms and Conditions for a VA fund manager managing a fund where the VA portion consists only of Relevant Stablecoins or a VA discretionary account manager managing a discretionary account that invests in VA but only in Relevant Stablecoins.
What SFC-licensed managers should take note
Relevant Stablecoins fall within the definition of VA under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO). As such, if an SFC-licensed manager manages a fund that intends to invest in VA (including Relevant Stablecoins), it should notify the SFC in advance (see Circular to intermediaries on compliance with notification requirements) and if the fund intends to invest 10% or more of its gross asset value in VA (including Relevant Stablecoins), the SFC may impose the Terms and Conditions as licensing conditions.
Please also take note of the prospective licensing regime for VA advisors and VA managers under the AMLO (see our article below).
For further information, please contact:
Vincci Ip, Partner, Deacons
vincci.ip@deacons.com
