A leading Hong Kong securities association has raised concerns over a series of proposed rule changes that could tighten the city’s regulatory grip on digital assets.
The industry body warns that the approach risks discouraging traditional asset managers from engaging with cryptocurrencies.
In a formal submission made on Tuesday, the Hong Kong Securities and Futures Professionals Association (HKSFPA) took issue with several elements of the city’s crypto regulatory framework, including a proposal that would remove the longstanding “de minimis” exemption for asset managers holding a Type 9 license.
Crypto proponents push back
Under the current system, firms with a Type 9 license, typically covering discretionary portfolio and asset management, can allocate up to 10% of a fund’s total assets to virtual assets without needing a separate virtual asset management license, so long as they notify the regulator.
But under the new rules put forward by the Securities and Futures Commission (SFC), that exemption would be eliminated entirely.
In its filing, the HKSFPA argued that removing the threshold would force managers to obtain a full license even for a 1% crypto allocation, an outcome it described as an “all-or-nothing” approach that imposes unnecessary compliance costs and regulatory hurdles, particularly for firms still exploring the space.
“This creates a disproportionate burden for traditional managers who are not seeking to run crypto-focused strategies, but simply want the flexibility to diversify,” the group wrote.
Last year, the Financial Services and the Treasury Bureau (FSTB) and the SFC released two consultation papers proposing new licensing regimes for virtual asset dealing and custody.
The move followed the government’s updated “Policy Statement 2.0” and signalled a more aggressive turn toward regulating digital asset activity under an “activity-based” framework, in which any engagement with crypto, regardless of scale, would require full licensing.
Subsequently, in December, regulators published their conclusions from the consultations and rolled out additional proposals, including the complete removal of the 10% exemption and the introduction of the OECD-aligned Crypto-Asset Reporting Framework (CARF).
The new framework expands the regulatory scope to include firms that previously operated outside of traditional securities law, such as those managing crypto-only portfolios without a Type 9 license.
According to a summary from local law firm JunHe LLP, the proposed changes would amount to a “material shift” in regulatory expectations.
Firms that have so far avoided Type 9 licensing by investing purely in crypto assets would now be brought under the same rules, regardless of whether their strategies resemble traditional asset management.
Overregulating can push innovation offshore
The HKSFPA also took aim at the proposed custody requirements, which would require all virtual asset managers to hold client assets exclusively through SFC-licensed custodians.
“This could end up excluding Hong Kong-based managers from participating in the Web3 and digital venture space entirely,” the association said, calling for flexibility to allow self-custody arrangements or the use of qualified overseas custodians when dealing with professional investors.
Still, the association noted that it supports the government’s initiative to build out a robust digital asset framework.
But it has warned that excessive restrictions, particularly for firms with minimal exposure, could end up pushing innovation out of the city at a time when rival hubs like Singapore and Dubai are actively courting crypto businesses.
Regulators have already launched licensing systems for trading platforms and stablecoin issuers, and the public consultation on the latest round of proposals will remain open until February 6, 2026.
The final rules are expected to take shape later this year.
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