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On 27 June 2025, the Financial Services and the Treasury Bureau (“FSTB”) and Securities and Futures Commission (“SFC”) released two consultation papers concerning the development of regulation surrounding virtual assets (“VA(s)”[1]). Specifically, the Consultation Papers propose new licensing regimes for (i) dealing in VAs (the “VA Dealing Consultation Paper”) and (ii) VA custodian services (the “VA Custodian Consultation Paper”, together with the VA Dealing Consultation Paper, the “Consultation Papers”). The consultation period for public comments on the Consultation Papers runs up until 29 August 2025.
The current proposals have the dual aims of strengthening Hong Kong’s Anti-Money Laundering (“AML”)/Counter-Terrorism Financing (“CTF”) compliance and creating an investor-friendly and secure VA regulatory framework in Hong Kong. This News Update summarises the key contours of the regulatory proposals made by the Consultation Papers, and offers our insights on the issue.
Key Definitions and Scope
“Dealing in VAs” – The VA Dealing Consultation Paper proposes to define “dealing in VAs” as the situation where, by way of business, any person makes or offers to make an agreement with another person, or induces or attempts to induce another person to enter into or to offer to enter into an agreement:
- for or with a view to acquiring, disposing of, subscribing for or underwriting VAs; or
- the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of VAs or by reference to fluctuation in the value of VAs.
The legislative proposals would capture VA-to-VA and VA-to-fiat conversions, brokerage and block trades, via physical outlets or other platforms. Peer-to-peer trading of VAs between individuals without the involvement of any intermediaries are generally excluded from the above scope, but platforms facilitating such trading will be assessed on a case-by-case basis, as they may fall within the scope depending on factors such as their remuneration model. Additionally, advisers taking client orders for VA trades and asset managers placing orders for VA trades may fall within the above scope.
“Provision of VA Custodian Services” – The VA Custodian Consultation Paper proposes to define the “provision of VA Custodian Services” as, by way of business, the safekeeping of VAs or instruments enabling the transfer of VAs of clients (including but not limited to private keys or similar instruments, such as smartcards or authentication credentials for accessing the private keys) on behalf of clients. The holding of one’s own VAs and associated private keys are excluded from the above scope.
Further details regarding the scope of the legislative proposals can be found hereinbelow:
| VA Dealing | VA Custodians | |
| Licensing requirement | A SFC licence is required to carry on a business of dealing in VAs in Hong Kong. | A SFC licence is required for businesses providing VA custodian services in Hong Kong. |
| In-scope entities | Existing SFC intermediaries offering VA dealing; SFC-licensed VA trading platforms (“VATP”). | Associated entities of SFC-licensed VATPs; banks, subsidiaries of locally incorporated banks, stored value facility operators; SFC-licensed/registered fund managers to the extent they safekeep client VAs or private keys. |
| Exemptions from licensing requirements | Stablecoin issuers licensed by the Hong Kong Monetary Authority (“HKMA”) under the Stablecoins Ordinance for primary market offering or redemption of their own stablecoins. | SFC/HKMA-regulated entities which safekeep client VAs only incidentally to their principal activities and do not hold private keys.
Stablecoins issued by and in the custody of HKMA-licensed stablecoin issuers (regardless of private key custody arrangements). Bank security vaults or security companies storing encrypted or deactivated private key backups, and technical service providers that do not safekeep private keys.
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Regulatory Proposals
Main aspects of the proposed regulatory framework are found in the table below:
| VA Dealing | VA Custodians | |
| Eligibility and “fit and proper” | A VA dealing or custodian licensee (“Licensee”) must be a locally incorporated company or a registered non-Hong Kong company.
The Licensee, its substantial shareholders and individuals carrying out the relevant regulated activities must satisfy the fit and proper requirements of the SFC. Custodian service applicants are additionally assessed on relevant experience, qualifications, and financial integrity. |
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| Governance and personnel | At least two SFC-approved responsible officers (or two HKMA-approved executive officers, as applicable). These personnel will be responsible for ensuring compliance with regulatory requirements (including AML/CTF requirements).
Each executive director of the Licensee must be an approved responsible officer or executive officer. The Licensee should establish an appropriate corporate governance structure with personnel having the necessary knowledge and experience. Custodian services only: Licensed individuals are required for staff performing custody functions beyond clerical roles. |
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| Financial resources | Share capital: at least HK$5 million (fully paid up).
Liquid capital: up to HK$3 million, plus an amount at least equivalent to 12 months’ operating expenses. Banks licensed by the HKMA are excluded from these tests. |
Share capital: at least HK$10 million (fully paid up).
Liquid capital: up to HK$3 million. Additional financial resources requirements proportionate to operating expenses and business scale are under consideration. Banks licensed by the HKMA are excluded from these tests. |
| Permitted activities | Activities within the definition of “dealing in VAs”; as well as deposits and withdrawals of client VAs to and from licensee wallet addresses. | Safekeeping of VAs and/or private keys (or similar instruments); as well as functions integral to VA services such as deposits, withdrawals, and settlement. |
| Types of VAs allowed | Requirements broadly follow those applicable to VATPs. In particular:
(a) Licensees should conduct prior reasonable due diligence on all VAs. (b) For retail clients, offerings limited to high liquidity tokens included in at least two independent market indices, plus stablecoins issued by HKMA-licensed issuers. |
No specific asset-type restrictions, subject to AML/CTF compliance.
For private key custodians, the Licensee’s technical custody infrastructure should be able to take custody of the specific token. |
| Risk management | Licensees must establish appropriate risk management policies for AML/CTF and other risks arising out of their business. Appropriate technological solutions, such as blockchain tools that enable the tracking of VAs and flagging of suspicious transactions, are required. | |
| Client asset protection | Client assets must be properly segregated; assets may be required to be kept with an SFC-licensed VA custodian in Hong Kong. | Aligned with VATPs, licensed custodians must meet rigid requirements relating to private key management, cybersecurity, and business continuity. |
| Investor protection and suitability | Safeguards should be put in place, including: assessing clients’ VA knowledge; providing adequate training; conducting client risk assessments and profiling; setting client exposure limits; and disclosing actual or potential conflicts of interest. | No specific investor suitability measures proposed beyond general obligations. |
| Record keeping and reporting | Proper record-keeping; providing information to the SFC/HKMA (e.g., wallet addresses, scope/nature of business, service types); financial reporting and disclosure (of audited accounts). However, financial reporting requirements do not apply to HKMA-licensed banks.
Custodian services only: Record keeping must specifically cover transactions and fund flows. |
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| Additional Services and Integration | Services beyond dealing (advisory, asset management, staking, borrowing, lending, margin trading) require separate SFC or HKMA approvals. | Ancillary services like staking may be permitted subject to case-by-case SFC or HKMA approval.
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| Multi-jurisdictional considerations | Authorities may allow licensed VA dealers to acquire or dispose of VAs for clients via non-SFC-licensed VATPs regulated in other jurisdictions or other liquidity providers, subject to certain safeguards (enhanced counterparty/AML due diligence, robust risk disclosures, and custody with SFC-licensed/registered VA custodians in Hong Kong). | N/A. |
| Penalties and enforcement | Unlicensed dealing: up to HK$5 million fine and 7 years imprisonment.
Conscious advertisement of unlicensed services: fine at level 5 (currently at HK$50,000) and 6 months imprisonment. Non-compliance with AML/CTF requirements: up to HK$1 million fine and 2 years imprisonment. Fraudulent behavior: up to HK$10 million fine and 10 years imprisonment. Fraudulent or reckless misrepresentation inducing others to engage in VA transactions: fine of HK$1 million and 7 years imprisonment. Administrative sanctions include licence suspension, revocation, reprimand, and pecuniary penalties up to HK$10 million. |
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| Transitional arrangements | No transitional arrangements have been proposed, with the regime to become fully effective upon commencement. Market participants are encouraged to engage SFC/HKMA early to initiate pre-application processes. | |
Analysis and Takeaways
Regulatory Framework for Virtual Asset Services in Hong Kong
Hong Kong is taking the necessary next step by extending supervision beyond VATPs to capture over-the-counter dealing and custodianship activities. This expansion addresses regulatory vulnerabilities and raises baseline standards across AML/CTF and investor protection measures. If implemented with appropriate proportionality, the reforms can strengthen market integrity without constraining growth. Successful execution will depend on addressing several key considerations:
- Overlap and duplication: Requiring separate licences across dealing, custody, and existing SFO and Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615 of the Laws of Hong Kong) (“AMLO”) frameworks risks duplicative supervision and fragmented compliance obligations. Streamlined pathways and targeted exemptions would help avoid unnecessary costs and complexity, particularly for smaller firms.
- Capital calibration: The proposal for virtual asset dealers to maintain liquid assets at least equal to 12 months’ operating expenses, in addition to other minimum requirements, goes well beyond typical Type 1 licensed corporation expectations. While liquidity is certainly important, immobilising substantial capital may divert resources which could otherwise be invested in security infrastructure, product development, and client service capabilities.
- Cross-border execution: The openness to using regulated overseas VATPs supports liquidity provision and best execution practices. Setting clear, objective criteria for eligible jurisdictions, counterparties and controls would help prevent case-by-case uncertainty that may delay client onboarding and trading activities.
- Transition arrangements: Market participants may face increased operational pressure due to the immediate effectiveness of the proposed regulations. Transparent pre-application pathways, standardised compliance checklists, and phased implementation milestones would reduce implementation risks and potential service disruptions.
Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.
This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.
Note
[1] “VAs” are given the same meaning as set out in section 53ZRA of the AMLO.