Hong Kong has emerged as one of the world’s most forward-thinking jurisdictions in the rapidly evolving cryptocurrency space. According to the Worldwide Crypto Readiness Report, Hong Kong ranked as the top region for crypto readiness in 2023, outperforming financial powerhouses like the United States and Switzerland. This leadership is reflected in metrics such as blockchain startup density per 100,000 residents and the number of crypto ATMs relative to population.
With a clear regulatory framework now in place, Hong Kong is positioning itself as a global hub for compliant digital asset innovation. This guide breaks down the key licensing regimes governing virtual asset activities in the region, focusing on the Securities and Futures Commission (SFC), Hong Kong Customs, and the Hong Kong Monetary Authority (HKMA).
Virtual Asset Trading Platforms: Dual Licensing Under SFC Oversight
The Securities and Futures Commission (SFC) is the primary regulator for virtual asset trading platforms operating in or targeting Hong Kong investors.
Under the Securities and Futures Ordinance (Cap. 571) and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615), centralized Virtual Asset Trading Platforms (VATPs) must obtain appropriate licenses to operate legally.
There are two parallel licensing tracks:
1. Securities and Futures Ordinance Regime
- License Type: Type 1 (Dealing in Securities) and Type 7 (Providing Automated Trading Services)
- Scope: Platforms offering security tokens with automated matching systems and custodial services
- Applicants: Licensed corporations and their responsible officers
2. Anti-Money Laundering Ordinance Regime (VASP License)
- License Type: Virtual Asset Service Provider (VASP)
- Scope: Platforms facilitating trading of non-security digital assets, such as Bitcoin (BTC) and Ethereum (ETH), with custody services
- Applicants: Licensed providers and their representatives
👉 Discover how to navigate dual licensing requirements for crypto platforms in Asia’s financial hub.
Due to the evolving nature of digital assets, a token may transition between being classified as a security or non-security. To ensure compliance continuity, platforms are strongly advised to apply under both regimes.
Important Deadline: The SFC opened VASP license applications on June 1, 2023. All unlicensed operators were required to submit applications by February 29, 2024, or cease operations by May 31, 2024.
Virtual Asset Fund Managers: Regulation Under SFC’s Type 9 License
The SFC regulates fund managers involved in virtual asset investments through its Type 9 (Asset Management) license, applying tailored conditions known as the Terms and Conditions for Virtual Asset Fund Managers.
These rules follow the principle of "same business, same risk, same rules", adapting existing fund management standards from the Code of Conduct for Fund Managers to address unique crypto-related risks.
Key Regulatory Scenarios:
- Full VA Portfolio Management: Managers overseeing portfolios fully or partially invested in virtual assets must comply with enhanced disclosure, custody, and risk management protocols.
- Less than 10% Exposure: Managers with less than 10% of portfolio value in virtual assets fall under a de minimis exemption, subject only to standard Type 9 regulations.
- Discretionary Account Services: If exceeding the de minimis threshold, licensees must adhere to full VA-specific terms, including independent custodianship and stress testing.
Distributors of virtual asset funds are also regulated under Type 1 (Dealing in Securities) licenses, with existing product suitability and complex product rules fully applicable.
Intermediaries Providing Crypto Trading or Advisory Services
Firms offering trading or investment advice on virtual assets must hold either Type 1 (Trading) or Type 4 (Advisory) licenses from the SFC.
Such intermediaries are bound by the Terms and Conditions for Virtual Asset Trading or Advisory Activities, which incorporate traditional securities regulations while addressing crypto-specific risks like volatility, custody, and market integrity.
A critical safeguard: any intermediary offering crypto trading services must partner exclusively with SFC-licensed virtual asset platforms—either by referring clients directly or integrating via omnibus accounts.
This ensures investor protection through regulated custody and transparent execution.
Hong Kong Customs: Upcoming OTC Licensing Framework
On February 8, 2024, the Hong Kong government launched a public consultation titled Proposals to Regulate Virtual Asset OTC Services, signaling plans to bring over-the-counter (OTC) crypto transactions under formal oversight.
The proposed regime would require all entities providing virtual asset OTC services as a business to obtain a license from Hong Kong Customs.
What Constitutes an OTC Service?
The draft defines OTC services as:
- Conducting spot trades of virtual assets as a business
- Through physical outlets (including ATMs) or digital platforms
- Excludes: Peer-to-peer transactions not conducted commercially, and platforms that merely display prices without participating in trades
Notably, platforms already holding an SFC-issued VASP license are exempt from this new OTC requirement.
Permitted Activities for OTC Licensees
To mitigate risk, licensed OTC providers will face strict limitations:
- Eligible Assets: Only virtual assets listed on at least one SFC-licensed platform for retail trading—currently limited to BTC and ETH, due to stringent "large-cap virtual asset" criteria.
- Stablecoin Restrictions: Only stablecoins issued by entities holding an HKMA-issued FRS license will be permitted post-regulation.
👉 Learn how OTC desks can prepare for Hong Kong’s new compliance era.
Additionally, operators facilitating fiat remittances will need a separate Money Service Operator (MSO) license—also regulated by Customs. Streamlined application processes for dual licensing are recommended to reduce compliance burden.
HKMA: Regulating Stablecoin Issuers
In December 2023, the Hong Kong Monetary Authority (HKMA) and Financial Services and the Treasury Bureau (FSTB) published a consultation paper proposing a licensing regime for fiat-referenced stablecoins (FRS)—digital tokens pegged to legal tender like USD or HKD.
The goal is to safeguard monetary stability, protect investors, and support responsible innovation.
Two-Pillar Regulatory Approach
- Licensing of FRS Issuers: All issuers must obtain an FRS license from the HKMA.
- Controlled Distribution: Only regulated entities—including licensed VA exchanges, FRS issuers, SFC-licensed firms, and authorized institutions—can offer or promote FRS to the public.
A notable extraterritorial provision: any entity issuing a stablecoin pegged to the Hong Kong dollar, regardless of jurisdiction, must obtain an HKMA license.
Key Licensing Requirements
Applicants must meet rigorous standards:
- Full backing of issued tokens by high-quality reserve assets
- Legal segregation of reserves from operational funds
- No interest payments to token holders
- Redemption at par value without excessive fees
- Minimum paid-up capital: higher of HKD 25 million or 2% of outstanding FRS value
- CEO and senior management based in Hong Kong
- Prior approval from HKMA before launching new products
Recognized financial institutions under HKMA supervision are exempt from certain operational requirements due to existing oversight.
The HKMA launched a regulatory “sandbox” on March 12, 2024, allowing potential issuers to test frameworks under controlled conditions—an initiative designed to foster ecosystem growth while ensuring safety.
Frequently Asked Questions (FAQs)
Q: Do I need both SFC licenses if my platform trades both BTC and security tokens?
A: Yes. You should apply for both the Type 1/7 license (for security tokens) and the VASP license (for non-security tokens like BTC/ETH) to remain fully compliant.
Q: Are peer-to-peer crypto trades legal in Hong Kong?
A: Yes. Personal P2P transactions not conducted as a business are not subject to licensing requirements under the proposed OTC rules.
Q: Can foreign companies apply for a VASP license?
A: Yes, but they must establish a presence in Hong Kong—either as a locally incorporated entity or a registered non-Hong Kong company with a physical office.
Q: What happens if I don’t apply for a VASP license by May 31, 2024?
A: Unlicensed operators must cease all business activities in Hong Kong by that date. Continued operation risks criminal prosecution and penalties.
Q: Is Tether (USDT) allowed under the new stablecoin rules?
A: Only if its issuer obtains an FRS license from the HKMA. Until then, only HKMA-approved stablecoins can be offered to retail investors.
Q: Does the OTC license cover cross-chain swaps?
A: The consultation does not clarify whether non-custodial swaps require VASP licensing. Entities offering such services should assess whether they constitute “trading as a business.”
👉 Stay ahead of Asia’s fastest-moving crypto regulations with real-time market insights.