Hong Kong to Allow Insurers to Hold Crypto Under New Capital Rules

Hong Kong's insurance regulator is proposing rules that would allow insurers to allocate capital to cryptocurrencies and infrastructure projects, marking an unprecedented expansion of permitted investments for the sector.

The Hong Kong Insurance Authority would impose a 100% risk charge on crypto assets under the proposal, Bloomberg reported today, citing a December 4 presentation seen by the publication. Stablecoin investments would face risk charges based on the fiat currency the Hong Kong-regulated stablecoin is pegged to, the document showed.

The framework will be open for public consultation from February to April, followed by legislative submissions, though the proposal could still change. A spokesperson for the regulator told Bloomberg it has commenced a review of the risk-based capital regime this year with a primary objective to support the insurance industry and wider economic development.

"We are at the stage of gauging industry feedback and will also put the proposals for public consultation in due course," the spokesperson said.

The move aligns with Hong Kong's broader strategy to establish itself as a digital finance hub. The Hong Kong Monetary Authority (HKMA), the city's de facto central bank, expects to grant the first batch of stablecoin approvals early next year, according to Bloomberg.

Hong Kong currently has 158 authorized insurers managing approximately HK$635 billion ($105 billion) in total gross premiums as of 2024, Bloomberg noted. The new rules would redirect a portion of that capital toward government-prioritized sectors including crypto assets and local infrastructure development.

The regulator is also proposing capital incentives for infrastructure investments in Hong Kong or mainland China, or projects listed or issued in the financial hub. Eligible projects include new town and urban area developments such as the Northern Metropolis, a planned tech hub bordering the mainland.

One objective for the infrastructure proposal is supporting government initiatives for local development, according to the presentation. The Hong Kong government, facing a budget deficit, has sought private capital to help build the Northern Metropolis. The insurance regulator stated it operates independently of the government.

Some firms submitting feedback are requesting broader coverage of infrastructure projects, as the current framework provides limited options, according to sources familiar with the matter who requested anonymity discussing private details.

The 100% risk charge on crypto assets would require insurers to hold capital equivalent to the full value of their crypto holdings, effectively doubling the capital requirements compared to lower-risk assets. The differential treatment for regulated stablecoins suggests Hong Kong is distinguishing between volatile crypto assets and dollar-pegged instruments backed by reserves.

The timing of the proposal coincides with Hong Kong's accelerated push to build regulated digital asset infrastructure following years of crypto market volatility and exchange collapses that prompted stricter oversight globally.