Hong Kong Asset Managers Push Back on Crypto Licensing Rules

A leading Hong Kong securities industry body has raised concerns over proposed changes to the city’s digital asset regulatory framework, warning that stricter licensing requirements could discourage traditional asset managers from gaining limited exposure to cryptocurrencies.

In a submission to regulators on Tuesday, the Hong Kong Securities and Futures Professionals Association (HKSFPA) objected to plans that would remove the existing de minimis exemption for Type 9 licensed asset managers.

Removal of Crypto Exposure Threshold Raises Concerns

Under the current framework, firms holding a Type 9 license — which covers discretionary portfolio and asset management — may allocate less than 10% of a fund’s gross asset value to crypto assets without applying for an additional virtual asset management license, provided they notify the regulator.

According to a report by local law firm JunHe LLP, the proposed changes would eliminate that threshold entirely. Even minimal crypto exposure — such as a 1% allocation to bitcoin — would trigger the requirement for a full virtual asset management license.

The HKSFPA described the proposal as an “all-or-nothing” approach, arguing that it is disproportionate to the level of risk involved and could impose substantial compliance costs on traditional managers.

Risk of Deterring Market Participation

The industry group warned that the proposed framework could discourage conventional asset managers from experimenting with digital assets or offering diversified portfolios that include limited crypto exposure.

According to the association, the removal of the threshold would likely reduce participation rather than enhance oversight, undermining Hong Kong’s efforts to bridge traditional finance and digital assets.

Regulatory Perimeter Set to Expand

The pushback comes as Hong Kong regulators advance broader reforms. In December, authorities published consultation conclusions following a public consultation launched in June. Since then, the Financial Services and the Treasury Bureau and the Securities and Futures Commission (SFC) have initiated further consultations on licensing regimes for crypto asset dealing, advisory, and management services.

Lawyers at JunHe noted that the proposals would represent a significant shift in regulatory expectations. Asset managers currently operating outside the Type 9 framework — including firms managing portfolios composed entirely of digital assets — would be brought within the licensing perimeter under the new rules.

Custody Rules Draw Additional Criticism

The HKSFPA also raised concerns over proposed custody requirements that would require virtual asset managers to hold client assets exclusively with SFC-licensed custodians.

The association said such a mandate could prove impractical for private equity and venture capital funds investing in early-stage or emerging tokens that are not yet supported by local custodians. It warned that the requirement could effectively prevent Hong Kong-based managers from running Web3-focused venture capital strategies.

At the same time, the group welcomed government consideration of allowing self-custody arrangements and the use of qualified offshore custodians when serving professional investors.

Balancing Oversight and Market Development

The debate highlights the challenge Hong Kong faces as it seeks to strengthen investor protections while positioning itself as a global crypto hub. Authorities have already rolled out licensing frameworks for virtual asset trading platforms and stablecoin issuers, signaling a clear commitment to regulatory clarity.

Industry participants now caution that overly rigid rules risk slowing adoption and limiting the participation of traditional financial institutions at a time when global competition for digital asset leadership is intensifying.