Industry Group Flags Licensing Threat to Hong Kong Crypto Managers

Hong Kong industry group warns new crypto licensing plans risk halting compliant managers without transitions, raising costs, disruption, and reduced digital asset experimentation.

Hong Kong’s crypto management sector faces renewed uncertainty as industry leaders warn of regulatory disruption. Consequently, a professional association warned that proposed licensing rules could inadvertently shut down compliance operations across the city’s growing digital asset ecosystem.

HKSFPA Warns of “Hard Start” Risk for Crypto Managers

The Hong Kong Securities and Futures Professionals Association raised concerns in a formal submission on Tuesday. Specifically, it forewarned regulators of a potential “hard start” with a full licensing process before rules could be implemented.

Under this approach, existing managers are to stop regulated crypto activities while applications are under review. Therefore, even compliant companies will be subject to operational pauses despite engagement with regulators.

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In addition, the association took issue with the elimination of the current “de minimis” threshold for Type 9 managers. At the moment, these fund managers are only allowed to allocate less than 10% of fund assets in crypto after they inform regulators.

According to JunHe LLP, this framework facilitates timid experimentation under controlled risk limits. However, proposed changes would eliminate that flexibility and place more rigorous licensing requirements.

As a result, any exposure to cryptocurrencies, even 1% allocation to Bitcoin, would result in full licensing. Consequently, the association labelled the approach as disproportionate and out of line with actual profiles of risk.

In addition, HKSFPA argued that compliance costs would be increased following minimal levels of exposure. Therefore, traditional managers may not want to do crypto diversification at all under the new structure.

The group further indicated custody requirements as another operational challenge. Proposals would have the important consequence of requiring virtual asset managers to use only SFC-licensed custodians.

However, early-stage tokens do not have the support of local licensed custodians in many cases. As a result, Web3-focused venture funds could face structural barriers in the Hong Kong ecosystem.

Hong Kong Pushes Broader Digital Asset Rulebook Expansion

These concerns are showing up as part of Hong Kong’s broader push to increase digital asset oversight. In the past, regulators mainly focused on local crypto trading platforms that were centralized.

In December, the Financial Services and the Treasury Bureau released consultation conclusions on virtual asset dealing services. Meanwhile, the Securities and Futures Commission made parallel regulatory proposals.

Subsequently, the regulators opened additional consultation on the licensing of virtual asset advisory and management providers. Therefore, oversight would cover a wider section of crypto-associated financial services.

HKSFPA lobbied regulators to restore a clear and risk-based de minimis exemption. Specifically, it put forward notification requirements for low exposure rather than full licensing regimes.

In addition, the group called for a 6 to 12-month period of transition. This grace window would give compliant firms a chance to adjust without disrupting ongoing investment activities.

Without transitional arrangements, compliance managers may find themselves in the face of forced shutdowns, even if there is good regulatory cooperation. As such, Hong Kong risks discouraging institutional participation in digital assets.

Ultimately, the association stressed balanced regulation that supports innovation, along with investor protection. Therefore, transitional clarity might be the deciding factor on whether or not Hong Kong will be a competitive regulated crypto hub.

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