A Hong Kong securities industry group has pushed back against key parts of the city’s proposed regulatory framework for virtual asset management, warning that the plan could discourage traditional asset managers from gaining exposure to cryptocurrencies.
In a Tuesday submission to regulators, the Hong Kong Securities and Futures Professionals Association (HKSFPA) criticized proposals that would tighten licensing requirements for portfolio managers. The group argued that the draft rules create an “all-or-nothing” compliance burden that could stop traditional firms from testing crypto exposure through small allocations.
Hong Kong authorities have been consulting the market on additional licensing regimes for virtual asset dealing, advisory, and management services, as the city expands its broader digital asset policy push. Already, regulators have made progress regarding frameworks for virtual asset trading systems and issuers of stablecoins, and now new regulations are emerging regarding fund management and custody activities.
HKSFPA focused much of its feedback on the plan to remove the existing “de minimis” threshold for managers with a Type 9 license, the SFC registration category covering discretionary portfolio and asset management.
Under current arrangements, Type 9 licensed firms can allocate less than 10% of a fund’s gross asset value to crypto assets without applying for a separate license uplift, as long as they notify the regulator. According to guidance cited by Hong Kong-based law firm JunHe, this approach has allowed traditional asset managers to gain limited crypto exposure while keeping risk and compliance costs in balance.
However, regulators are now proposing to scrap that threshold entirely. Under the updated plan, even a minimal allocation, such as a 1% holding in Bitcoin, would require managers to secure a full virtual asset management license.
HKSFPA called the approach disproportionate. The group warned that it would impose significant compliance costs regardless of actual exposure size, which could deter fund managers from experimenting with crypto as an emerging asset class.
JunHe lawyers also highlighted how the proposed framework could significantly expand the scope of firms that fall under licensing requirements.
Some asset managers that run portfolios made up entirely of digital assets do not currently hold Type 9 licenses because their work does not fit neatly into the traditional definition of managing securities portfolios. Under the proposed regime, those firms would also need to obtain a virtual asset management license, which would widen regulatory coverage across crypto-native investment vehicles.
That shift could reshape how Web3 funds operate in Hong Kong, particularly specialist managers that have historically relied on lighter-touch classifications.
HKSFPA also criticized the proposed custody framework. The draft rules would require virtual asset managers to hold client assets only with SFC-licensed custodians.
The association warned that this requirement would create practical issues for private equity and venture capital funds, especially those investing in early-stage or newly issued tokens. Many local custodians do not support these assets during early lifecycle stages, which could block Hong Kong-based funds from participating in Web3 venture deals.
HKSFPA argued that a strict custody mandate could effectively prevent Hong Kong managers from running Web3-focused VC funds, even when investors understand the risks and accept specialist custody approaches.
Meanwhile, the industry organization supported the consideration by regulators of more flexible alternatives, such as permitting self-custody in a limited fashion and allowing the use of qualified offshore custodians when serving professional investors.
The announcement comes at a time when Hong Kong is increasing its pace to emerge as an Asian leader in the cryptocurrency market. The Hong Kong Monetary Authority has introduced licenses for exchanges, as well as for stablecoin providers.
However, feedback of this kind from the industry, such as what has been seen in HKSFPA’s feedback, shows that what the market desires is regulation commensurate to risk rather than regulation that seeks to haul all crypto-related activity into a costly regulatory orbit. The consultations have brought about a new era of negotiations between policymakers and industry participants.
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