Hong Kong's Virtual Asset Licensing Regime – Navigating Recent Regulatory Developments
On 24 December 2025, the Financial Services and the Treasury Bureau (FSTB) and Securities and Futures Commission (SFC) surprised the industry by publishing a consultation conclusion on virtual assets (VA) dealing and VA custodian services as a Christmas present. At the same time, they launched a new consultation specifically targeting virtual asset advisory and management services. We’ve highlighted the key developments below.
Key Amendments and Requirements
The consultation on VA dealing licensing regime received broad industry support for regulatory expansion. However, respondents raised practical concerns regarding scope and operational feasibility, prompting the SFC to refine its proposals.
Scope Refinement
The SFC narrowed the definition of VA dealing to focus on activities directly comparable to Type 1 regulated activity (dealing in securities). The regime covers any person who, by way of business, makes or offers to make agreements with a view to acquiring, disposing of, or underwriting VAs. Key exclusions include, among others, tokenised securities (falling under existing SFO regimes), peer-to-peer transactions between private individuals, and transactions through SFC-regulated VA dealers.
Significantly, activities such as staking, lending, and margin trading fall within scope, though the SFC will assess applicable regulatory requirements based on client credit risk, liquidity risk, and operational controls.
For VA custodian services, a licence will be required where an entity can independently transfer clients’ VAs or otherwise control the private keys under the proposed framework. Conversely, true non‑custodial wallet providers and certain multi-party computation (MPC) arrangements in which clients can independently reconstruct private keys and transfer assets without provider support are generally outside the licensing perimeter. Custody of tokenised securities that are not VAs is also excluded from the VA custodian licence.
The regime clarifies which entity will fall within scope. In particular, associated entities of SFC‑licensed VATPs, licensed corporations that provide VA custody themselves (including firms licensed for Type 13 activity), and licensed fund managers that self‑custody fund VAs by holding private keys would need to obtain a VA custodian licence. Any entity operating a VA custodian service from Hong Kong must be licensed, regardless of whether its clients are overseas persons. The SFC also confirms that custodians regulated in Hong Kong may use overseas group resources, provided the Hong Kong custodian retains independent, unilateral control over client assets.
Core Regulatory Requirements
Custodian Mandate
Licensed VA dealers must custody client assets exclusively with an SFC‑regulated VA custodian. This is a significant investor‑protection measure that raises the bar for custody arrangements and counterparty due diligence. The SFC has signalled flexibility for different business models and intends to clarify expectations through pre‑application engagement with applicants.
Operations and Financial Resources
VA Dealers:
Minimum paid-up share capital: HK$5 million
Minimum liquid capital: HK$3 million
Alignment with Type 1 regulated activity standards
VA Custodian:
Minimum paid-up share capital: HK$10 million (except banks)
Minimum liquid capital: HK$3 million
Alignment with Type 13 (depositary services) standards
VA custodians will be required to perform robust due diligence on tokens they hold, including assessments of ML/TF risks, and the SFC will issue guidance on token admission processes and related controls. The regulator intends to adopt a dynamic approach to custody technologies and storage ratios and will consider market feedback on hot/cold storage models, private key management, insurance or compensation arrangements, and independent audits.
The SFC will build custodian requirements upon existing VATP Guidelines, addressing hot/cold wallet storage, insurance, private key management, business continuity, and independent audits. No deeming arrangement applies; expedited approval is available for bank subsidiaries and entities with prior SFC/HKMA assessments.
Exclusions and Exemptions
Exemptions would cover transactions executed through SFC‑regulated VA dealers, principal trading, intra‑group transfers, and use of VAs as payment for goods or services. An incidental‑dealing exemption is expected for SFC‑regulated VA managers who deal solely to provide licensed management services. HKMA‑licensed stablecoin issuers conducting regulated stablecoin activities would be exempt. The SFC is also considering exemptions for distribution of VAs generated as rewards for ledger maintenance or transaction validation, and for VA issuers’ activities where tokens are distributed via SFC‑regulated intermediaries or offered only to professional investors.
Notably, top-layer trustees and fund managers delegating custody to third parties do not require separate licensing. Similarly, non-custodial service providers, stablecoin issuers licensed by the HKMA, and professionals (solicitors, accountants) acting incidentally are exempt.
The SFC will permit self-custody for PE/VC fund managers up to a limited threshold without requiring separate licensing, recognising difficulties in obtaining custody support for newly launched tokens.
Investor Protection
The SFC stressed that firms must implement client knowledge assessments, suitability determinations and clear conflict‑of‑interest disclosures. These requirements mirror established SFO principles and place emphasis on robust onboarding, ongoing suitability reviews and transparent client communications.
Licensing Fee
Following the “user-pays” principle, the licence application fee and annual fee for VA dealing and VA custodian service providers licensed by or registered with the SFC will be benchmarked with the relevant fees for Type 1 and Type 13 regulated activities under the SFO.
No Deeming Arrangement
It is confirmed that there will not be any transitional grace period; the regime takes full effect on commencement. That said, the SFC will offer expedited processing for existing SFC‑licensed VATPs, licensed corporations and registered institutions, which may ease the operational transition for incumbents.
Further Consultation on VA Advisory and Management Services
The SFC launched a further consultation (closing 23 January 2026) on separate licensing regimes for VA advisory and management service providers. The simultaneous launch of a consultation signals the SFC's intent to build out the VA regulatory framework comprehensively. Industry participants providing advice on VA investment strategy or active asset management services should prepare to:
assess whether their activities fall within the proposed advisory/management scope
evaluate licensing pathway options
engage with the consultation process to provide operational feedback
VA Advisory Services
Advising on VAs is proposed to align with Type 4 regulated activity, covering advice on whether, which, or when VAs should be acquired or disposed of. Proposed exemptions are similar to the traditional Type 4 regulated activity, which includes, among others, advising group companies, acts incidental to dealing or to professional service providers and acts solely for fund management.
Regulatory requirements align with Type 4 frameworks: AML/CFT compliance, minimum paid-up share capital of HK$5 million, minimum required liquid capital of HK$100,000 (or HK$3 million if holding client assets), and investor protection safeguards.
VA Management Services
Managing a VA portfolio for others aligns with Type 9 regulated activity. Notably, no de minimis threshold applies – any entity providing asset management for portfolios investing in VAs (regardless of VA allocation percentage) must obtain a licence. The SFC emphasises that this approach prevents regulatory arbitrage and maintains consistency with SFO asset management standards.
Besides standard questions similar to the consultation for VA dealing, the SFC seeks feedback on whether VA asset managers should be required to appoint SFC-regulated custodians exclusively or retain flexibility to appoint any custodian. Self-custody for PE/VC fund managers up to a limited threshold will be considered.
Regulatory requirements align with Type 9 frameworks: minimum paid-up share capital of HK$5 million, minimum required liquid capital of HK$100,000 (or HK$3 million if holding client assets), and comprehensive risk management frameworks.
Conclusion and Way Forward
The legislative proposals comprehensively address the entire VA value chain – from acquisition and disposal to safekeeping to advisory and portfolio management. By aligning with existing SFO frameworks under "same activity, same risks, same regulation," the FSTB and SFC create regulatory clarity and consistent investor protection standards.
The relevant bill is expected to be introduced to the Legislative Council in 2026. Critically, no deeming arrangement applies – existing VA operators and interested entities must obtain licences before commencement or cease operations. Early engagement with the SFC is essential; market participants should initiate pre-application processes immediately ([email protected]) to benefit from expedited approval and shape regulatory expectations.
How can Ocorian help?
With deep regulatory knowledge and sector-specific experience, we help organizations build sustainable compliance frameworks that support business objectives while ensuring regulatory alignment. The time to engage is now – early applicants benefit from expedited processes and first-mover advantages in Hong Kong's growing VA ecosystem.
Our Hong Kong team can help you understand the new change in regulatory landscape by assessing your current practice, developing policies and procedures, and implementing an effective compliance framework. We can assist you with getting your VA licences in Hong Kong.
Get in touch if you’d like support in navigating the complexities of the upcoming licensing regime on VA-related services, making sure your business stays compliant, and reducing the risk of regulatory issues.
