Hong Kong to Further Enhance Licensing Regime for Virtual Assets to Cover Advisors and Managers

Since Hong Kong’s proposals last summer for mandatory licensing of virtual asset (VA) dealers and custodians, regulators have published consultation conclusions on those proposals along with further proposals extending the licensing regime to VA advisory and management service providers. This Sidley Update examines the key developments and new proposals that further expand regulatory oversight of the VA ecosystem.

As detailed in our July 2025 Update, the Hong Kong Securities and Futures Commission (SFC) and the Financial Services and the Treasury Bureau initially proposed licensing regimes for VA dealing and custodian services to address gaps in the existing framework that primarily focused on VA trading platforms. Following the consultation period that ended in August 2025, regulators published consultation conclusions in December 2025, finalizing those proposals with some refinements based on market feedback.

Building on this foundation, the authorities have now proposed two additional licensing regimes for VA advisory and management service providers. Under these expanded proposals, any person carrying on business providing VA advisory services or managing VA portfolios in Hong Kong will be required to obtain a license or registration with the SFC, subject to fit-and-proper tests and other factors the SFC deems relevant.

VA Advisory Services Licensing

The licensing regime will be expanded to cover all VA advisory activities, with the definition to be consistent with Type 4 regulated activities under the Securities and Futures Ordinance (SFO). This covers any business that provides advice or issues analyses or reports to enable others to acquire or dispose of VAs and, importantly, retains the statutory intragroup, incidental, and other exemptions.

VA Portfolio Management Licensing

Any person carrying on the business of managing VA portfolios will require licensing or registration with the SFC, subject to fit-and-proper tests. This includes firms delegated with discretionary power to make investment decisions in VAs for funds. Similar to the Type 9 regime under the SFO, the proposals retain the statutory intragroup, incidental. and other exemptions, meaning VA managers who deal solely for portfolio management purposes will not require separate dealing licenses.

Significantly, the regime removes the existing 10% de minimis threshold. This means intermediaries providing asset management services for any portfolio investing in VAs, regardless of the VA allocation size, must obtain appropriate licensing or registration.

Financial Resource Requirements

Consistent with the “same activity, same risks, same regulation” principle, financial resource requirements are expected to align with those for Type 4 and Type 9 activities. VA advisors and managers will be required to maintain minimum paid-up share capital of HK$5 million and liquid capital of HK$100,000 (if not holding client assets) or HK$3 million (in other cases).

Other Exclusions and Exemptions

Building on the framework established for VA dealing services, the regime provides several key exclusions and exemptions. VA dealing activities exclude peer-to-peer trading between individuals where no intermediary is involved. Stablecoin issuers licensed by the Hong Kong Monetary Authority (HKMA) and conducting regulated stablecoin activity are exempt, as they are already subject to HKMA regulation and supervision.

The consultation conclusions refined the scope to focus on entities that safekeep private keys or similar instruments enabling VA transfers, following a risk-based approach. Notably, entities that delegate safekeeping to third parties without themselves holding private keys will not require licensing, as their role is primarily administrative rather than custodial.

Other exemptions under consideration include transactions conducted through SFC-regulated VA dealers, transactions conducted as principal, intragroup transactions, and the use of VAs as payment for goods or services. 

The regulators are also considering exemptions for the distribution of VAs generated as rewards for ledger maintenance or transaction validation, and for VA issuers regarding VAs they create or mint, provided these are conducted through SFC-regulated intermediaries or offered exclusively to professional investors. Additional exemptions may apply for legal and accounting professionals appointed to hold backup private keys for clients or by courts to administer assets including VAs.

For private equity and venture capital fund managers facing difficulties with custody of new tokens not supported by established VA custody infrastructure, the SFC will consider allowing self-custody up to a limited threshold without requiring a VA custodian service provider license.

Implementation Timeline and Key Takeaways

The one-month public consultation period ends on January 23, 2026, with the Hong Kong Government aiming to introduce legislation as soon as practicable thereafter alongside the licensing regime for VA dealing services and VA custodians. Once implemented, any person who advises or manages VA portfolios, including those who actively market such services to the public, faces imprisonment of up to seven years and a fine of HK$5 million unless properly licensed.

Consistent with the approach for dealing and custodian services, the proposals do not include transitional arrangements for existing VA advisors or managers. Rather, entities currently providing VA-related advisory or management services are encouraged to apply ahead of the new regime’s commencement under a streamlined approval process to minimize business interruption.

Comments

The consultation conclusions show that the regulators have refined their approach based on industry feedback, particularly around the scope of custodial services and the practical challenges facing different market participants. The focus on entities that actually hold private keys, rather than those with purely administrative roles, reflects a more nuanced understanding of custody operations and should reduce unnecessary regulatory burden while maintaining investor protection.

The removal of the 10% de minimis threshold for management services represents a significant expansion that could affect many traditional asset managers with even minimal VA exposure. Combined with the comprehensive framework now covering dealing, custody, and advisory and management services, Hong Kong is positioning itself as having one of the most extensive VA regulatory regimes globally.

Market participants should begin preparing for compliance well ahead of the regime’s implementation, particularly given the absence of transitional arrangements and the serious penalties for noncompliance. The streamlined approval process for existing regulated entities provides some relief, but early engagement with regulators will be crucial for a smooth transition.