Hong Kong industry body opposes stricter crypto licensing rules for asset managers

A Hong Kong securities industry group has pushed back against key aspects of the city’s proposed regulatory framework for digital asset management, warning that the changes could discourage traditional asset managers from gaining exposure to cryptocurrencies.

In its Tuesday submission to regulators, the Hong Kong Securities and Futures Professionals Association (HKSFPA) objected to regulatory proposals that would remove the existing “de minimis” threshold for Type 9 licensed managers. 

Under the current framework, firms holding a Type 9 license — which covers discretionary portfolio and asset management — are permitted to invest less than 10% of a fund’s gross asset value in crypto assets without seeking a separate license uplift, provided they notify the regulator, according to a report from local law firm JunHe LLP.

HKSFPA said the proposed changes would eliminate that threshold, meaning even a minimal allocation — such as a 1% exposure to bitcoin — would require a full virtual asset management license. 

“This ‘all-or-nothing’ approach is disproportionate,” the industry group said, arguing that it would impose significant compliance costs despite limited risk exposure and deter traditional managers from experimenting with the crypto asset class.

The industry group’s pushback focuses on a regulatory framework that has already gained momentum. Last December, Hong Kong authorities published consultation conclusions on the proposals, following a public consultation launched in June.

The Financial Services and the Treasury Bureau and the Securities and Futures Commission have since launched further consultations on introducing additional licensing regimes for crypto asset dealing, advisory, and management services.

Stricter licensing

Lawyers at JunHe said the proposal would mark a material shift in regulatory expectations and that the proposal would capture managers currently operating outside the Type 9 framework. 

Some asset managers who invest 100% of their portfolio in digital assets do not currently hold a Type 9 license, as their activities do not fall within the traditional definition of managing securities portfolios, the lawyers said. Under the proposed regime, those firms would likewise be required to obtain a virtual asset management license, significantly expanding the regulatory perimeter.

The HKSFPA also criticized proposed custody rules that would require virtual asset managers to hold assets exclusively through SFC-licensed custodians. 

The industry group said this would be impractical for private equity and venture capital funds investing in early-stage tokens that local custodians do not yet support. It warned that a strict mandate could effectively prevent Hong Kong-based managers from operating Web3-focused VC funds. 

Meanwhile, the association expressed support for the government’s consideration to allow the self-custody of funds and the use of qualified offshore custodians in serving professional investors.

The proposed regulatory changes come as Hong Kong accelerates efforts to position itself as a crypto hub. Authorities have rolled out licensing frameworks for virtual asset trading platforms and stablecoin issuers.

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