"All or Nothing" regulation hampers Hong Kong's cryptocurrency management industry—industry groups express concerns

According to Odaily’s report, the Hong Kong Securities and Futures Practitioners Association (HKSFPA) has expressed serious concerns regarding the proposed new regulatory framework for digital asset management in Hong Kong. Of particular note is the fact that the proposed regulatory approach has an “all or nothing” nature. Under this approach, even minimal involvement in cryptocurrencies could impose significant regulatory costs and compliance obligations on institutions.

Entry Barriers Resulting from the Abolition of Current Rules

Currently, institutions holding a Class 9 license (asset management) in Hong Kong can, through notification to regulators, invest up to 10% of their total fund assets in cryptocurrencies. Under this framework, there is no need to apply for an additional virtual asset management license. However, the proposed new regulations plan to abolish this “de minimis” threshold.

The biggest issue with the draft amendment is that even a 1% Bitcoin allocation would require obtaining a full virtual asset management license. HKSFPA points out that such an “all or nothing” regulatory mindset is significantly unbalanced. Despite the limited risk exposure, institutions would have to bear enormous compliance costs, making it extremely difficult for traditional asset management firms to gradually enter the crypto asset sector.

Custody Requirements—Gaps Between Practice and Regulation

Furthermore, industry concerns extend to the proposed custody requirements. The new draft stipulates that virtual asset managers must store assets only with custody institutions licensed by the Securities and Futures Commission (SFC).

HKSFPA argues that this requirement is not practical for early-stage token investments and Web3 venture capital fields. When local Hong Kong institutions attempt to expand into these emerging areas, the restriction to dealings only with licensed custody providers could significantly limit market entry. At the same time, it would also narrow the path for collaboration with internationally trusted overseas custody providers.

Industry Proposals for a Flexible Regulatory Framework

Amid these concerns, HKSFPA has also put forward constructive suggestions. The association supports allowing self-custody and the use of qualified overseas custody institutions for professional investor services. This approach could enable more flexible operations for professionals with advanced risk management capabilities and enhance Hong Kong’s competitiveness in the global crypto asset management industry.

According to The Block, Hong Kong authorities have announced a summary of consultations related to the proposed regulations and plan to initiate further consultations on licensing systems for crypto trading, consulting, and management services. Dialogue between industry and regulators will be key moving forward.