On June 27, 2025, Hong Kong’s Financial Services and the Treasury Bureau (FSTB) and the Securities and Futures Commission (SFC) jointly released two pivotal consultation papers aimed at expanding the city’s regulatory framework for virtual assets. These documents—the Virtual Asset Dealing Consultation Paper and the Virtual Asset Custody Consultation Paper—mark a significant evolution in Hong Kong’s approach to regulating over-the-counter (OTC) trading and custodial services for digital assets.
This regulatory push follows the recent implementation of rules governing virtual asset trading platforms (VATPs) and the upcoming Stablecoins Ordinance. Together, these initiatives signal Hong Kong’s ambition to become a globally recognized hub for cryptocurrency innovation while maintaining strong investor protections and financial integrity.
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Background: From Physical Kiosks to Comprehensive Regulation
The current consultation builds on an earlier proposal from February 2024, which primarily targeted physical OTC operations such as crypto ATMs and retail shops conducting fiat-to-virtual asset exchanges. That initial framework envisioned licensing by the Commissioner of Customs and Excise (CCE), with limitations on transaction types and a six-month transitional period for existing operators.
However, industry feedback revealed a far more complex ecosystem than originally anticipated. Stakeholders highlighted that modern virtual asset dealing extends beyond physical storefronts to include:
- Digital-only trading platforms
- Institutional broker-dealer models
- Payment service providers integrating crypto
- VA card networks
- Asset managers executing block trades or settlement conversions
Moreover, many firms serve institutional clients—including market makers and SMEs—whose needs differ significantly from retail investors. Crucially, the earlier consultation did not address custody services, which are often essential for advanced trading activities.
In response, the FSTB and SFC have adopted a more holistic, principle-based approach—one aligned with Hong Kong’s broader financial regulatory philosophy: “same activity, same risks, same regulation.”
This shift also involves transferring oversight from the CCE to the SFC and the Hong Kong Monetary Authority (HKMA), ensuring consistent supervision across virtual asset activities and reducing regulatory fragmentation.
Key Proposals: Expanding the Regulatory Perimeter
Virtual Asset Dealing Services
Under the new framework, any person conducting business that involves making, offering, or inducing agreements related to:
- Acquiring, disposing of, subscribing for, or underwriting virtual assets
- Securing profit from asset yield or value fluctuations
will require a Virtual Asset Dealing Licence (VA Dealing Licence).
This definition mirrors the established “dealing in securities” clause under the Securities and Futures Ordinance (SFO), creating a broad and technology-neutral scope. It covers:
- Simple conversions (VA-to-fiat, VA-to-VA)
- Brokerage and advisory services
- Block trading and institutional execution
- Online platforms and physical outlets
Notably, active marketing of these services to Hong Kong residents—even from offshore—will be prohibited without a licence.
Entities expected to require licensing include:
- SFC-licensed VATPs (regardless of off-platform activity)
- Licensed corporations already offering VA dealing
- Unregulated brokers, market makers, liquidity providers, and asset managers
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Virtual Asset Custodian Services
A Virtual Asset Custodian Licence (VA Custodian Licence) will be required for any business that:
- Safekeeps clients’ virtual assets
- Holds instruments enabling transfer (e.g., private keys, smart cards, authentication credentials)
Exemptions may apply to technology providers that support custody but do not directly control access tools. The FSTB and SFC are actively seeking feedback on business models involving third-party arrangements or group entities managing keys.
Covered entities likely include:
- Subsidiaries of SFC-licensed VATPs providing custody
- Banks and stored value facility (SVF) operators holding private keys
- Fund managers practicing self-custody for VA-investing funds
Regulatory Oversight Structure
The SFC will serve as the primary regulator for most firms. However, banks and SVFs offering VA dealing or custody will remain under HKMA supervision, though they must register with the SFC—mirroring the current model for bank securities activities.
This unified oversight helps ensure consistency in standards and compliance expectations across different financial institutions.
Licensing Requirements: Ensuring Fitness and Financial Soundness
For Virtual Asset Dealing Licensees
Applicants must meet stringent eligibility criteria:
- Be incorporated in Hong Kong or registered as an overseas entity with a local presence
- Demonstrate “fit and proper” status for the firm, substantial shareholders, and key personnel
- Appoint at least two SFC-approved Responsible Officers (ROs)
- Maintain minimum paid-up capital of HK$5 million and liquid capital up to HK$3 million
- Hold excess liquid capital covering 12 months of operating expenses
- Implement robust AML/CFT systems and internal controls
For Virtual Asset Custodian Licensees
Requirements are similarly rigorous:
- Same incorporation and fit-and-proper standards
- At least two SFC-approved ROs
- Higher minimum paid-up capital: HK$10 million
- Liquid capital up to HK$3 million plus additional financial resource requirements
- Staff in key roles must be licensed or registered with the SFC or HKMA
- Comprehensive AML/CFT and risk management frameworks
Both types of licensees will undergo external assessments during the application process.
Token Eligibility and Trading Restrictions
The SFC intends for VA Dealing Licensees to align their token admission policies with those of licensed VATPs. This implies:
- Retail investors can access only high-liquidity tokens (e.g., BTC, ETH) and HKMA-regulated stablecoins
- Professional investors may access a broader range of vetted tokens after due diligence
In contrast, VA Custodian Licensees face no restrictions on token types—provided they conduct thorough due diligence to mitigate money laundering and terrorist financing (ML/TF) risks and possess compatible custody infrastructure.
Regulatory Alignment and Operational Flexibility
The SFC is committed to applying consistent rules across similar activities. Therefore, VA Dealing Licensees can expect obligations comparable to those imposed on existing SFC-licensed crypto firms—including requirements related to:
- Risk management
- Client asset protection
- Conduct of business
- Financial reporting
- Record keeping
One notable proposed flexibility: VA Dealing Licensees may execute trades via non-SFC-licensed but regulated overseas platforms, provided sufficient investor safeguards exist. This marks a departure from current rules that restrict trading to SFC-licensed VATPs only.
Such a move supports Hong Kong’s goal of integrating with global liquidity pools, enhancing market depth and competitiveness.
No Transitional Period: A Firm Start Date
Unlike previous regulatory rollouts—including the VATP licensing regime—no transitional period is proposed for either the dealing or custody frameworks.
Once enacted, unlicensed firms must cease operations immediately. This strict approach aims to prevent prolonged operation under de facto legitimacy during application reviews.
However, it raises practical concerns for existing players needing time to prepare applications. The FSTB and SFC encourage firms already active in these spaces to initiate pre-application discussions with regulators as soon as possible.
Frequently Asked Questions (FAQ)
Q: Who exactly needs a Virtual Asset Dealing Licence?
A: Any business offering agreements to buy, sell, or profit from virtual assets—including brokers, advisors, market makers, and hybrid platforms—must obtain a licence if serving Hong Kong clients.
Q: Does self-custody by fund managers require licensing?
A: Yes. If an SFC-licensed fund manager holds private keys for funds investing in virtual assets, they will need a VA Custodian Licence unless the activity is incidental to their primary function.
Q: Can I market VA services to Hong Kong users from overseas?
A: No. “Actively marketing” VA dealing or custody services to Hong Kong residents requires a licence—even if the marketing occurs outside Hong Kong.
Q: Will there be exemptions for tech providers supporting custody?
A: Likely. Firms that enable custody but don’t hold private keys directly may be exempt, though final rules depend on industry feedback.
Q: What happens if my licence application is still pending when the law takes effect?
A: Without a transitional period, you must halt operations until approved. Early engagement with the SFC is strongly advised.
Q: Can I trade through foreign-regulated exchanges under the new rules?
A: Potentially. The SFC is considering allowing VA Dealing Licensees to use overseas regulated platforms if adequate investor protections are in place.
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Conclusion: Building a Globally Aligned Crypto Hub
The FSTB and SFC’s proposals represent a mature, principles-driven expansion of Hong Kong’s virtual asset regime. By adopting definitions rooted in traditional finance and focusing on functional equivalence, regulators aim to foster innovation while safeguarding market integrity.
Key issues likely to shape final rules include:
- The scope of licensing exemptions
- Flexibility in cross-border trading arrangements
- The feasibility of launching without a transitional period
With the consultation closing on August 29, 2025, stakeholders have a critical window to influence these landmark regulations.
For crypto businesses operating or planning entry into Hong Kong, now is the time to assess exposure, engage with regulators, and align compliance strategies with this forward-looking framework.
Core Keywords: virtual asset regulation, Hong Kong crypto laws, VA dealing licence, VA custodian licence, SFC regulation, FSTB consultation, cryptocurrency compliance