Hong Kong Crypto Hub: New Licensing Requirements for Asset Managers and Advisers

Introduction

Hong Kong is expanding its crypto licensing regime to cover a broader range of virtual asset dealers and custodians, marking a major step in tightening oversight of its digital asset market. Following months of consultation, the Financial Services and the Treasury Bureau (FSTB) and the Securities and Futures Commission (SFC) confirmed that firms offering virtual asset dealing or custody services in Hong Kong will be required to obtain licenses under a new framework. This move is part of the SFC’s ASPIRe roadmap, aimed at building a comprehensive, institutional-grade Hong Kong crypto regulation framework that aligns digital assets more closely with traditional securities rules.

Under the new Hong Kong crypto licensing rules, a wide range of activities will fall into regulatory scope, including virtual asset-to-fiat and crypto-to-crypto conversions, brokerage and block trading services, over-the-counter (OTC) trading, and related advisory functions—whether operated online or via physical outlets. For the first time, OTC crypto brokers and crypto custodians will be brought fully under SFC oversight. Entities holding or controlling client private keys in Hong Kong must become licensed custodians, comply with strict client asset segregation rules, implement strong internal controls for key management, enhance cybersecurity standards, and maintain robust business continuity plans. Dealers will only be allowed to place client assets with licensed or registered Hong Kong crypto custodians, and both dealers and custodians will need to meet “fit-and-proper” criteria and capital requirements (around HK$5 million for dealers and HK$10 million for custodians).

Beyond dealers and custodians, Hong Kong is also consulting on extending licensing requirements to virtual asset advisers and asset managers, further aligning the crypto regulatory framework with traditional finance. This builds on earlier measures, including mandatory licensing for crypto trading platforms (with 11 exchanges already approved) and the introduction of a Stablecoin Ordinance that created a dedicated licensing regime for stablecoin issuers. Authorities have simultaneously widened market access by allowing licensed Hong Kong crypto exchanges to connect with global liquidity pools and easing some token listing rules. Overall, the city is positioning itself as a tightly regulated yet competitive Asia crypto hub, combining stronger investor protection with clearer pathways for compliant digital asset innovation.

Background

Hong Kong is entering the next phase of its crypto regulation strategy with a sweeping expansion of its virtual asset licensing framework. After concluding a series of consultations, the Financial Services and the Treasury Bureau (FSTB) and the Securities and Futures Commission (SFC) have confirmed that virtual asset dealers and crypto custodians operating in or from Hong Kong will soon be subject to mandatory licensing.

For a DeFi or fintech audience, this shift matters for three reasons:

1. It moves Hong Kong from an exchange‑only model to full market coverage across trading, brokerage, custody, and advisory.

2. It formalizes regulatory expectations for capital, governance, key management, and investor protection in a way that is closer to traditional finance.

3. It sends a signal that Hong Kong aims to be a regulated digital asset hub, not a lightly supervised offshore venue.

This article breaks down the new Hong Kong crypto licensing rules in plain language, explains key regulatory concepts, and highlights what different types of firms should be doing now to prepare.

From Exchange Rules to a Full Digital Asset Framework

Until recently, Hong Kong’s core crypto rules focused mainly on centralized trading platforms. Under the SFC’s virtual asset trading platform (VATP) regime, exchanges serving retail or professional investors must be licensed, with only a limited number of platforms currently approved under this mandatory framework.

The new measures significantly widen the net:

• On December 24, 2025, the FSTB and SFC announced that firms providing virtual asset dealing or custody services will also need licenses once the new framework comes into effect, following broadly supportive feedback from industry consultations (SFC news releases ref. 25PR210 and 25PR99).

• These reforms are part of the SFC’s broader ASPIRe roadmap, which aims to create a comprehensive digital asset framework that treats virtual assets in a way that is broadly consistent with securities and futures regulation, while accounting for their technical specifics.

This brings Hong Kong closer to global regulatory trends. International standard setters such as the Financial Stability Board (FSB) and IOSCO have urged jurisdictions to apply “same activity, same risk, same regulation” to crypto markets—treating key crypto intermediation functions similarly to traditional finance where the underlying risks are comparable.

What Counts as a “Virtual Asset Dealer” Under Hong Kong’s New Rules?

The new virtual asset dealer license is designed to capture a broad set of activities that go beyond centralized exchanges:

Activities in scope include:

• Virtual asset–to–fiat trading (for example, HKD/BTC or USD/ETH).

• Virtual asset–to–virtual asset trading (for example, BTC/ETH, stablecoin pairs).

• Brokerage and block trading for institutional or high‑net‑worth clients.

• Over‑the‑counter (OTC) crypto trading, whether conducted online or via physical shops.

• Related advisory services, such as recommending virtual assets or structuring bespoke trades.

Crucially, this means OTC crypto brokers and dealer-style desks that may previously have operated outside the VATP perimeter will now fall squarely under SFC oversight.

The SFC has signaled that virtual asset dealers will be regulated in a way that closely mirrors Type 1 licensed securities dealers under the existing Securities and Futures Ordinance (SFO). In practice, that typically implies:

• Fit-and-proper tests for controllers, directors, and responsible officers.

• Requirements for robust internal controls, risk management, and compliance.

• Client onboarding and KYC/AML standards aligned with Hong Kong’s anti‑money‑laundering regime.

• Ongoing reporting and inspection powers for the regulator.

For fintech and DeFi‑adjacent businesses, the key point is that if your business model involves arranging, executing, or advising on virtual asset trades for clients in Hong Kong, it is increasingly likely to be treated as a regulated dealing activity, not just “technology provision.”

Dedicated Licensing for Crypto Custodians

Alongside dealers, Hong Kong is introducing a dedicated crypto custodian license. This reflects a core regulatory concern: who controls client assets and how those assets are protected.

Under the proposed framework:

• Any entity that holds or controls private keys for client virtual assets in Hong Kong will need to be licensed or registered as a custodian.

• Dealers will be required to place client assets only with licensed or registered custodians operating in Hong Kong.

The rules emphasize several key safeguards:

1. Segregation of client assets

• Client assets must be separated from the custodian’s own funds.

• This is a direct response to past global failures where customer assets were commingled and lost in insolvencies.

2. Key management and operational security

• Strong controls over private key generation, storage, access, and recovery (for example, multi‑party computation (MPC), hardware security modules (HSMs), and strict key access policies).

• Enhanced cybersecurity standards to address hacking, phishing, and operational risks.

3. Business continuity and disaster recovery

• Clear business continuity planning (BCP) and disaster recovery measures to ensure clients can regain access to assets even in severe outages or firm failures.

4. Capital requirements and financial resilience

• Virtual asset dealers are expected to maintain around HK$5 million in capital.

• Custodians will face higher thresholds, including HK$10 million in paid‑up capital.

These financial resource requirements are designed to ensure that licensed custodians have sufficient buffers to operate safely, invest in infrastructure, and manage operational risks.

Fit-and-Proper, Conduct, and Governance: What Regulators Expect

The term “fit and proper” appears frequently in Hong Kong’s regulatory language, and it is central to the new crypto licensing regimes as well.

In this context, fit-and-proper requirements usually cover:

• Integrity and reputation – no serious criminal records, market misconduct, or regulatory bans.

• Competence and experience – appropriate background in finance, risk, technology, or compliance for the specific role.

• Financial soundness – the ability of the firm and key controllers to support the business responsibly.

In addition, licensed virtual asset service providers (VASPs)—including dealers, custodians, and in future advisers and managers—should expect:

• Documented policies and procedures for risk management, client classification, conflicts of interest, and outsourcing.

• Ongoing AML/CFT compliance, including monitoring, suspicious transaction reporting, and sanctions screening.

• Clear disclosure to clients around risks, fees, and how assets are safeguarded.

For DeFi‑native teams that are starting to “wrap” services for institutional or retail users (for example, front‑ends that route orders to on‑chain liquidity or custody solutions using multi‑sig or MPC), it will matter who is legally responsible for the client relationship, who holds the keys, and where the activity is deemed to take place.

Extending Licensing to Crypto Advisers and Asset Managers

In parallel with the dealer and custodian regimes, the SFC has launched a consultation on extending licensing to virtual asset advisory and management service providers (consultation ref. 25CP12).

This would bring into scope:

• Crypto investment advisers – firms that recommend virtual asset portfolios, strategies, or products to clients for a fee.

• Virtual asset fund and portfolio managers – including strategies that invest in spot assets, derivatives, or tokenized instruments.

The goal is to align these activities with existing Type 4 (advising on securities) and Type 9 (asset management) licenses for traditional finance, giving the SFC clear powers to supervise, inspect, and, where necessary, sanction firms operating in this space.

For the DeFi and fintech community, this is particularly relevant for:

• Tokenized funds and on‑chain asset management strategies marketed to Hong Kong investors.

• Centralized or hybrid platforms that provide model portfolios, robo‑advisory, or discretionary management in virtual assets.

• Structured products and yield strategies that bundle multiple DeFi protocols into one offering.

If a firm is selecting assets, making discretionary decisions, or holding itself out as a manager or adviser to Hong Kong clients, it should assume it will be treated similarly to a traditional asset manager—with similar expectations on governance, risk, and disclosure.

Hong Kong’s Broader Digital Asset Strategy: Stablecoins and Market Access

The expansion of crypto licensing does not exist in isolation. It builds on several earlier steps that define Hong Kong’s digital asset strategy:

• Mandatory licensing for trading platforms – Hong Kong already requires crypto exchanges serving local customers to be licensed, with an official list of approved platforms published on the SFC’s website (SFC virtual asset trading platforms list).

• Stablecoin regulation – Earlier in 2025, the city’s Stablecoin Ordinance came into force, creating a licensing regime for stablecoin issuers and distinguishing more tightly regulated “payment stablecoins” from more volatile crypto assets.

• Connectivity to global liquidity – Authorities have allowed licensed exchanges to connect to global liquidity pools under defined conditions, aiming to improve execution quality while keeping regulatory controls.

• Eased token listing rules – Within limits, token listing requirements have been refined to enable a broader yet still curated set of tokens to be listed on licensed platforms.

Taken together, this positions Hong Kong as a regulated digital asset hub in Asia, roughly comparable in ambition to Singapore’s MAS framework and the EU’s Markets in Crypto‑Assets (MiCA) regime, while tailoring the details to its own legal and market context.

Implications for DeFi, OTC Desks, Fintechs, and Global Firms

Different types of market participants will feel the impact in different ways:

1.  OTC desks and broker-style operations

• OTC shops and brokerages serving Hong Kong clients will likely need a virtual asset dealer license.

• Firms that previously treated themselves as “unregulated” because they were not running an exchange should reassess this assumption.

• Expect increased scrutiny on source of funds, KYC, trade surveillance, and how client orders are handled.

2. Custodial providers and infrastructure firms

• Custodial solutions, including those embedded in wallet providers, fintech apps, or prime brokerage services, will face crypto custodian licensing obligations if they control private keys for Hong Kong clients’ assets.

• Technical design choices—such as non‑custodial vs. custodial wallets, shared MPC schemes, or omnibus structures—will have regulatory consequences.

• Capital, insurance, and operational resilience will become core differentiators for institutional clients.

3. DeFi front-ends and protocol‑adjacent businesses

• Pure, permissionless smart contracts on a public blockchain may remain outside Hong Kong’s direct licensing scope. However:

  • Front‑end operators, aggregators, or “DeFi‑as‑a‑service” providers that target Hong Kong users might be viewed as rendering dealing, advisory, or management services.

  • The more a service looks like a broker, exchange, or manager in user experience and legal structure, the more likely it is to be treated as such.

• Teams will need to consider geofencing, disclosures, and governance structures if they are intentionally engaging with Hong Kong users or investors.

4. Global crypto and fintech firms

• Groups with entities in multiple jurisdictions will likely consider using Hong Kong as a regulated booking center in Asia, similar to how they treat hubs like Singapore or Dubai.

• To do so, they will need to align group compliance frameworks with Hong Kong’s expectations across AML, conduct, and operational risk, not treat Hong Kong as a peripheral market.

Practical Steps to Prepare for Hong Kong Crypto Licensing

For firms that may be in scope, a proactive approach can reduce both regulatory risk and future rework. Practical steps include:

1. Map your activities against the new regimes

• Identify whether you:

  • Execute trades for clients (dealer function).

  • Hold or control client private keys (custodian function).

  • Provide advice or discretionary management (advisory/asset management).

• Consider where your clients are located and whether you actively target Hong Kong.

2. Conduct a regulatory gap analysis

• Compare your current controls with SFC expectations under the VATP regime, SFO rules, and the new dealer/custodian proposals.

• Focus on governance, risk management, client asset protection, AML/CFT, and technology controls.

3. Strengthen governance and compliance

• Clarify board and management responsibilities for risk, compliance, and information security.

• Designate responsible officers or senior managers with demonstrable expertise in both finance and digital assets.

4. Upgrade technology and security practices

• Review key management, access control, logging, and incident response.

• Consider whether your wallet architecture, especially custodial components, aligns with the sort of controls regulators expect from licensed custodians.

5. Plan capital and financial resources

• Evaluate your ability to meet HK$5 million capital expectations for dealers and HK$10 million for custodians, along with any liquidity or buffer expectations.

6. Engage early with the SFC

• Regulators have explicitly encouraged firms to pursue pre‑application discussions to understand how the rules apply to their specific business models.

• Early engagement can help shape your licensing strategy, entity structure, and timeline.

Conclusion: A Clearer, More Institutional Crypto Market in Hong Kong

Hong Kong’s expanded crypto licensing framework for dealers, custodians, advisers, and managers represents a decisive move toward a more institutional, better supervised digital asset market.

For the DeFi and fintech ecosystem, this is not simply about “more rules.” It is about:

• Clearer pathways for regulated participation in virtual assets.

• Higher standards around custody, governance, and investor protection.

• A regulatory environment that can support institutional capital, tokenized products, and innovative market structures—provided they operate within defined risk and compliance boundaries.

Firms that start adapting now—by understanding whether they fall under Hong Kong crypto licensing, upgrading their controls, and engaging with regulators—will be better positioned to benefit from the city’s ambition to be a leading, well‑regulated digital asset hub in Asia.